Initiating Coverage: Affle Ltd.
03-04-2023

About the Company:

Affle India is a technology company with a proprietary consumer intelligence platform that delivers consumer acquisitions, engagements, and transactions through relevant mobile advertising. It is an Indian company with subsidiaries abroad. India is one of the select markets in the world where digital advertising spends continue to grow at a rapid pace. The digital advertising industry in India grew by 35.3% in 2021 on a YoY basis. Digital media has been leading the growth rally for the Indian advertising industry, growing at almost twice the rate of the overall industry.

The company has two business segments:

The Consumer Platform provides services for leading brands and B2C companies globally by delivering user acquisitions, recommendations and conversions through relevant mobile advertising. The Consumer Platform offers new consumer conversions, retargeting existing consumers and an online to offline platform that converts online consumer engagement into measurable in-store walk-ins. Revenue is earned on a Cost Per Converted User (CPCU) basis, which includes user conversions based on consumer acquisition and transaction models.

Revenue is also earned through awareness and engagement type advertising (Non-CPCU). The CPCU revenue for FY2021-22 on a consolidated basis was Rs. 9,740.18 million, a y-o-y growth of 126.8% from Rs. 4,294.32 million in FY2020-21.

Enterprise Platform: Provides end-to-end solutions for enterprises to enhance their engagement with mobile users, such as developing Apps, enabling offline to online commerce for offline businesses with e-commerce aspirations and providing enterprise grade data analytics for online and offline companies.

Platform-wise break up of Revenue                      

Consumer Platform Revenue Mix

Industry Overview:

The pace of digital adoption is rapidly accelerating, transforming both the economy and society and fundamentally altering the way people behave and interact. The exponential increase in machine-readable data available over the internet is a defining characteristic of this digital transformation, giving rise to a data-driven, digitally intelligent ecosystem at an unprecedented scale.

Furthermore, the growth of mobile internet is set to accelerate even further with the advent of 5G, which is scaling up faster than any previous mobile network generation. Industry projections suggest that Global 5G subscriptions will surpass 1 billion by the end of 2022.

Competitors: Tradedesk, InMobi, Criteo, Pubmatic, Magnite, Digital turbine operate in developed markets of US & Europe. Amongst competitors, only Affle and InMobi have patents related to mobile advertising segment with new patents granted in 2022 being 3 and total of 20 patents with Affle.

Business Performance:

Affle delivered revenue growth of 6.1% and a PAT growth of 17.6% QoQ in Q3 FY2023. It achieved revenue CAGR of 58.5% in Q3 over the last 3-year period, much ahead of the industry growth trends. CPCU business delivered 67.8 million user conversions during the quarter, at an INR 51 CPCU rate.

Overall, CPCU revenue for Q3 increased by 14% y-o-y, ahead of the total revenue growth of 10.8% YoY. In terms of 9M FY2023, company achieved revenue growth of 40.6% YoY, PAT growth of 40% YoY and this growth was largely well-balanced across the three quarters.

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Risks:

Customers can reduce their marketing spends due to decline in Startup funding in key markets like India, South East Asia, Middle East and Latin America.

Adverse Data protection Laws such that Personal Data Protection Act (PDPA) that Government of India intends to implement which is in-line with the Data Protection Laws enacted in Europe shall increase the Data Inventory Cost.

Outlook:

Based on continued optimism, greater recovery across industries, and further innovations on mobile and in OTT/CTV video streaming, it is expected that global ad spends will continue to outperform those in the past, potentially even doubling in next years.

Despite major changes in data privacy laws, tracking, and regulation, digital ad spend is expected to show steady growth. Specifically, within the digital landscape, mobile advertising is projected to account for a considerable and growing share of digital ad spend. Looking ahead to India, it is expected that the country's consumer digital economy will be a USD 800 billion market in 2030, representing an approximately 10x growth from 2020 (as per EY).

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