Virus Halted Affle India’s Stellar Market Debut Run. It May Also Spur Growth
Covid-19 pandemic disrupted the stellar stock market run since debut for Affle India Ltd., wiping off nearly half of its peak value. But at least two brokerages are confident of uninterrupted growth for the consumer intelligence and mobile advertising firm as lockdowns increased screen times and accelerated the online shift.
Having gone public in August last year, the advertising technology to app-developing services provider soared 78 percent till February before tumbling amid the global coronavirus selloff. While business collapsed across sectors during the first three phases of the curbs, online ordering to entertainment spiked.
Affle India’s software uses artificial intelligence and data analytics for targeted online advertising to help acquire users and customers, improve engagement and increase frequency of transactions.
The company declined to comment on BloombergQuint’s emailed queries on Covid-19 impact, citing silent period ahead of March quarter results. But despite the risks, ICICI Securities and Motilal Oswal, citing their interactions with the management, expect Affle India to benefit from it.
Here what’s working for Affle India:
Virus-Driven Online Shift
While overall consumption in the economy fell during the lockdowns since late March, consumer screen time and share on online spends has increased. Motilal Oswal said in a note that higher online video consumption created higher impressions and clicks, allowing service providers like Affle India to collect more data. “This will be a long-term effect and will benefit the industry in a structural way.”
A Model That Shows Value To Clients
Affle charges clients based on cost per converted user—meaning, they pay for only when users download applications or transact. This contributes more than 90 percent of its revenues.
“Performance or conversion models help to demonstrate value to customers by generating superior return on investment, lower ad fraud and improve ad quality and user experience,” Nomura said in a November note. This gives the company a stronger footing as compared to clients spending on just number of online impressions and clicks, it said.
That becomes even more crucial when companies will look at costs and value much more carefully amid the disruption caused by the virus.
Edge Over Competition
Affle India competes with other advertising technology players including InMobi, Criteo, Mobvista, RevX and Tab. According to ICICI Securities, Affle India’s data-management and fraud-detection platforms give it a strong moat. Its technology and programming results in better user conversion, higher return on client investment and client retention, the brokerage said in a note. Affle saw 80 percent of its clients come back in 2017 and 100 percent in 2018, the brokerages said, adding that six of its top 10 clients stayed with the company for more than three years.
According to a Motilal Oswal note, high dependence on single industries will make it difficult for competitors to stand their ground. Affle, however, is gaining market share in the advertising tech space, it said.
Afflle, according to its initial public offer filings, works with all six global advertising majors—WPP (GroupM), Publicis, Omnicom, Dentsu Aegis Network, Interpublic Group Mediabrands and Havas—which together control 70 percent of the global advertising spend.
And it has diversified into e-commerce, online gaming, entertainment (over-the-top players), fintech and healthcare, with operations in India, South East Asia and pockets in the U.S. and Europe.
Cross-Selling For Offline Businesses
Affle India aids its clients in converting online users to offline store walk-ins by helping them build e-commerce vertical, according to ICICI Securities. That’s a huge long-term potential given that many offline retailers in India may need an online presence.
Affle Inda’s edge is in targeting and retargeting relevant customers with ads based on data insights. Restrictions by customers, publishers, web developers on collection of such data may impair the company’s ability to deliver similar insight.
Up Against The Biggies
The advertising technology market is dominated by Google and Facebook Inc., cornering more than 70 percent of the digital advertising spends, according to consulting firm Frost and Sullivan. These companies gather a large quantum of user-specific data. ICICI Securities said Google and Facebook dominate not just in market share but also user practices, pricing policies and general terms and conditions. Any change by them in pricing policies and user practices can hinder Affle India’s data collection process.
Stricter regulations by governments may present a similar challenge.
Affle generated nearly 43 percent of its 2018-19 revenue from just two advertising clients. According to ICICI Securities, the company’s inability to maintain relationships with ad agencies could limit growth potential. If large advertisers set up in-house teams to work on advertising technology, that may also hinder business for companies like Affle India, it said.
Prolonged Covid-19 Curbs
While the company stands to benefit from the increased screen time, a prolonged Covid-19 crisis will weaken its financial position. That would eventually reduce investments by clients, impacting Affle’s business.