Q2 Earnings Conference Call

Moderator: A very good day, ladies and gentlemen. I’m Sourodip, your moderator of this session. Thank you for standing by and welcome to the second quarter 2016 earnings conference call for Rediff.com. For the duration of presentation, all participants’ line will be in a listen-only mode. And now without any further delay, I would like to hand over the proceedings to our first panel member for today, Mr. Mandar Narvekar. Thank you, and over to you, sir.

Mandar Narvekar: Thank you, Sourodip. Good morning, everyone and thank you for being with us to discuss Rediff.com’s financial results for the second fiscal quarter ended September 30, 2015. I would like to introduce you to the members of the management present on this call who will take you through the highlights of the company’s performance. We have with us Mr. Ajit Balakrishnan, Chairman and CEO; and Mr. Swasti Bhowmik, CFO. For your immediate reference, we have posted the earnings release for the second fiscal quarter ended September 30, 2015, dated today on our website at investor.rediff.com. You may also call our Indian office at +91-2261820000 and we will be glad to fax or e-mail you a copy during the course of this call.

Before proceeding, I would like to mention that during the conference call, except for the historical information and discussions contained herein, statements may constitute forward-looking statements for the purpose of the Safe Harbor Provision under the U.S. Private Securities Litigation Reform Act of 1995.
Forward-looking statements may be identified by the use of forward-looking terminology such as may, will, expect, believe, will continue, anticipate, estimate, intend, plan, contemplate, seek to, future objective, goal, project, should, will, will perceive or similar terms, variations of those terms or the negatives of those terms.
These statements involve a number of risks, uncertainties, and other factors that can cause actual results to differ materially from those that may be projected by the forward-looking statements.

These risks and uncertainties include but are not limited to a slowdown in the economy worldwide and in the sectors in which our clients are based, a slowdown in internet and IT sectors worldwide, competition, the success or failure of our past or future acquisitions, attracting, recruiting and retaining highly skilled employees, technology, acceptance of new products or services, the development of broadband Internet and 3G networks in India, legal and regulatory policies, managing risks associated with customer products and a widespread acceptance of the internet.

Listeners should review the risk factors contained in our latest annual report on Form 20-F and other reports filed by Rediff.com with the U.S. Securities and Exchange Commission from time to time. These reports are available on the SEC website, from the SEC offices in Washington, D.C. and on request by emailing us at investor@rediff.co.in.
Rediff.com and its subsidiaries may from time to time make additional written and oral forward-looking statements. Rediff.com and its subsidiaries do not undertake to update any forward-looking statements that may be made from time to time by Rediff.com or on its behalf. Please also note that the results presented today include results that are on a non-GAAP basis. A full recalculation table of the non-GAAP measures to GAAP measures can be found in the company press release issued earlier today. These financial measures are included for the benefit of investors and should be considered in addition to and not instead of GAAP measures.

Mr. Ajit Balakrishnan will start the call with an exit and will be followed by Swasti Bhowmik, Chief Financial Officer of Rediff.com who will take you through the highlight of the company’s performance this quarter and fiscal year ended September 30, 2015. I would now like to introduce Ajit Balakrishnan, our Chairman and CEO.

Ajit Balakrishnan: Good morning to all of you, and thank you for joining this call. We appreciate your interest in our company and thank you for you continued support. I am happy to report that during this quarter we made progress towards our declared ambition of being a media company on the internet which primarily derives its revenue and income from marketplace transactions. This quarter’s results are a strong indication of the progress that we have made on this. Marketplace revenues now account for 33% of overall revenue. We also improved our gross margin from 25% of revenue to 33% of revenue over the year. We have reduced our operating expenses by 20% over the last year of the same quarter by executing various technological improvements in our operations. This has resulted in an EBITDA loss of 1.86 millions for the quarter which is 35% lower compared to the previous year.

Looking ahead our growth strategy is focused on further driving our marketplace transaction revenues while growing our margins. On an average in this past quarter, we earned a margin which is defined as a take rate on these transactions of 26% over the product value that we transacted. We believe that we have considerable headroom to grow the volume of our transactions. At present, less than 1% of the users who come to us to read news, information and use our communication services are transacting in the marketplace. We believe that by implementing various initiatives including improving the algorithms that we use currently to target personalized offers to our users, we believe once we implement all of these we will see a sharp uptake in the proportion of people of our own site visitors who shop with us. ComScore reports that 20% of PC-based users in India visit our sites every month. ComScore India at the moment do not report on the number of users who use mobile phones in India. They have told us that they will begin doing that shortly, but we do have our internal record which shows that a third of our marketplace transaction already happens on mobile phones as there is a consumption of content services. So we are in the middle of handling this transition to mobile, and we are confident that we can move our users as well as transactions there. Our CFO, Swasti, will now take you through the highlights of our performance of this quarter. Thank you.

Swasti Bhowmik: Thank you, Mr. Balakrishnan. Good morning, everyone. As Mr. Balakrishnan mentioned we are pursuing our strategy of growing contribution of our marketplace revenue to our overall revenue while internet usage transitions to mobile devices in India. I am pleased to inform you that our total revenues in rupee terms for the quarter ended September 30, 2015, grew 1% over the corresponding quarter last year and 7% sequentially. Due to the negative impact of the Indian rupee to US dollar exchange rate, this translates to a 6% decrease year-over-year in dollar terms, and we recorded a total revenue of 3.42 million as compared to 3.65 million in the corresponding quarter last year.

As Mr. Balakrishnan mentioned, we are working diligently working to increase marketplace sales as this is our core growth platform. As of quarter ended September 30, 2015, our marketplace revenue now accounts for 33% of the total revenue as compared to 31% in the corresponding quarter last year reflecting the company’s shift towards adopting a media company business model. The Indian consumer market is responding well to the marketplace offering and in rupee terms the marketplace revenue has grown 6% on a year-on-year basis and 26% over the immediately preceding quarter. We have a healthy take rate of 26%. It is defined as fees earned as a percentage of value of products transacted at the end of the quarter ended September 30, 2015.

In our paid email business where we provide a secure and reliable enterprise plus email service to small- and medium-sized businesses as well as large corporates, we recorded a 13% growth in revenues. And in the local TV advertising business where we use internet technologies to provide opportunities for small merchants to advertise on national channels in specific cities, we recorded a 27% growth in revenues. In both cases, the growth in revenues in the quarter ended September 30, 2015, is compared to the corresponding quarter last year.

Our gross margin has expanded to 33% in the quarter ended September 30, 2015, as compared to 25% in the corresponding quarter last year. This growth in gross margin has been faster than the revenue growth mainly on account of optimization of cost. Our continued focus on driving efficiencies of operations has resulted in a lower operational cost in the quarter ended September 30, 2015. Operating expenses for the quarter ended September 30, 2015, were down by 20% at $2.99 million as compared to $3.77 million for the same quarter last year. The reduction in operating expenditure was driven by improved financial disciplines and streamlining of marketplace cost.

Operating EBITDA was decreased by 35% compared to the corresponding quarter last year. Operating EBITDA showed a loss of $1.86 million for the quarter ended September 30, 2015, as compared to an operating EBITDA loss of $2.87 million for the corresponding quarter last year.

Net loss per ADS for the quarter was $0.064 as compared to net loss per ADS of $0.109 for the same quarter last fiscal year. The total cash and cash equivalence stood at $6.8 million translating to Rs. 450 million as of September 30, 2015, as compared to $7.6 million and in rupee terms of 488 million as of June 30, 2015.

I would now like to turn the call over to Mr. Balakrishnan.

Ajit Balakrishnan: Thank you, Swasti. I would like to emphasize our strategy is to pursue a media company model in which online marketplace transactions are the primary driver of the overall revenue. We intend during the current quarter to further drive our marketplace transaction revenues by maintaining a good margin on an average. As I mentioned, we earned a take rate of 26% on products transacted in the marketplace. Again, as I have mentioned earlier, comScore reports that 20% of all PC-based internet users in India visit us every month. In addition to this, according to our own estimate, a third of our marketplace transaction as well as contents consumption already happens on mobile devices. Our goal is to maintain the same reach on mobile when the expected user growth happens. All our efforts including product development, marketing and operations are focused on driving our reach and marketplace transaction revenues in the context of this anticipated mobile growth in mobile internet usage in India.

Before I end the call, I would like to reiterate that we are pleased with this quarter’s progress. We have streamlined the cost and significantly improved margins. Importantly, online marketplace is gaining traction among internet users in India. Although we see a negative headwind in this quarter due to foreign exchange rate, we are pleased that our strategy is taking hold and we are heading in the right direction. Thank you all for joining us on this call.

Mandar Narvekar: Thank you, Mr. Balakrishnan. We would like to again inform everyone that we have posted the details of our financials for the second fiscal quarter ended September 30, 2015, on our website at investor.rediff.com, and we’ll also file the details with the SEC on Form 6-K. You’re welcome to email us any questions that you may have, and we’ll gladly post our answers to all the appropriate questions on our investor website for everyone’s reference. I would once again like to thank you all for joining on this call. Have a good day.