Q309 Call: Why Info Edge Sales Were Down Only 10% In Q3

A few industry executives contacted us after the Info Edge results, wondering about how it is that the companys net sales are down only 9.95% quarter on quarter, despite the job market having tanked. The answer lies in the way Info Edge accounts their sales – money from clients who pay for a 12 month package is split and added month on month, and hence sales revenues are deferred. This means that while one is unlikely to see a significant dip in sales, quarter on quarter, one is also unlikely to see a sharp increase. In Naukri, Info Edge accounts sales only on collection, and has debtors only for Quadrangle and All Check Deals.

At the end of the October-December quarter (Q309), the deferred sales revenue for Info Edge was Rs. 48 crores, and, according to Sanjeev Bikhchandani on the earnings call, this was coming down. Clients are now paying Info Edge for shorter time-frames now, opting for 6 month packages, and so collections may be deferred over 6 months instead of 12 months. Note that the 9.95% decline in net sales is a consolidated amount, which also includes verticals other than Jobs (Naukri and Quadrangle) – Jeevansathi (Matrimonial) and 99Acres.

Some inputs about the downturn in the job market come by way of key performance indicators for the recruitment segment for the company:

The contribution of the recruitment business (Naukri and Quadrangle) to the top-line is down to 84% from 86% last quarter and 89% in Q3 last fiscal. The number of unique customers for Naukri declined from 18,642 in Q2 to 17,268 in Q3. Fewer resumes were added daily – 13,600 as compared to 16,500 in Q2, and 40,000 were modified daily, as compared to 37,000 in Q2. The share of IT in Q3 is down to 25.9% versus 29.7% in the same quarter last year.

According to Hitesh Oberoi, COO of Info Edge, there was pricing pressure from some clients, largely because clients are cutting down on hiring requirements, and hence number of licenses, number of listings, and particularly branded products. However, Naukri continued to maintain margins – at 45.8% in Q3, as compared to 45.3% in Q2 and 47% in Q1. Quadrangle, their recruitment consultancy, has had a disastrous quarter – declining by 48% over Q3 last fiscal. According to the company, in October and November, joining dates were postponed, offers were withdrawn and candidates were not keen on switching jobs.

We asked the company a few questions on the earnings call:

MN: Is there a possibility that you might cut your losses and actually exit the matrimonial business? I ask because Sanjeev (Bikhchandani) had said recently that in a downturn that number one and number two survive, and I would assume that you are number three in the matrimonial space?

Bikhchandani:Well, no we’re number three on an aggregate revenue basis but if you look at market segments this is the matrimonial market is highly segmented and it’s about communities, castes and religions. And you want to be number one for a few communities and that’s where we’re making progress, we are number one in several communities in North India and in the Maharashtra. And we’re heading towards number one in several more. So the issue here is not to be number one, two or three in aggregate revenue. It is for your target costumers are you number one and is that segment is large enough for you run a viable business and clearly we have seen good progress on that front on the product on analytics on the predictive modeling on the selling and marketing, which is one reason why we were able to grow at 27% and at the same time reduce losses to 30 lakhs only in Q3.

MN: What is the rationale behind investing in a whole new business Firstnaukri, given that the job market is down and what kind of an investment can we see in this business in the coming quarter?

Oberoi: FirstNaukri is not a real big investment for us reason being that it is going to be sold through the same sales team and the same customers. And basically what we have right now is maybe 2-3 people working on the technology and the product. It’s a different concept we don’t expect any significant revenue out of it in the first year, but don’t expect significant costs either and but if done well, this is a market segment we don’t target at all. The Naukri side does not serve for this segment at all but it’s a big segment that is growing yet there maybe temporary slowdown in campus hiring for a year or so. But we feel that it will take a year for this one to get traction also and by the time that happens hiring may look up again and therefore it may become a useful product to have at that point in time.

MN: What is the status of the investments that you’ve made in the last fiscal. How are those companies doing because I believe they are fairly small, and would be significantly affected by the downturn.

Bikhchandani: Well Applect just launched its site called meritnation.com. We’re quite excited by the products, it just launched a week or ten days ago, it’s called meritnation.com, take a look at it. And we’re quite excited by the product but you know it’s very, very early. That will unfold over the next few months. Policy bazaar launched a few months ago and they are still figuring out the sale strategy and the marketing strategy and there is some progress happening there. Studyplaces continues to sell to its clients, lead generation and some advertising. We have a small stake there.

Could you give an idea of how Shiksha has being doing over the last three months?
Oberoi: We put a sales team in place, and are getting the product right. The number of users have gone up, we are getting about 15,000 users a day on the site, we’re getting about 500 registrations every day, so the numbers on the traffic side are encouraging. On the revenue side, we have put a system and we have put a sales unit in place, they are going out, meeting customers, we are getting some sales, it will be the sales are not material right now to make, they do not make a difference to our books but we are hoping that sales will pick up in this quarter and the quarters going forward.
Bikhchandani: Typically what happens when we launch a new website or a new vertical is that, it gets us about 12 to 18 months to keep on experimenting with the product is really right and I think we are getting the product more and more right in Shiksha as we go along. And that is when we put big marketing muscle behind it till then we invest small amounts in online promotion, so, which is where Shiksha is today.

Stats for “Other Verticals”

— Net sales for other verticals grew 49% (year on year) though of a much smaller base. They were at Rs. 9.1 crores for the quarter up from 6.1 crores the same quarter previous year, and flat as compared to Q2 (Rs. 9.05 crores)
— EBITDA losses in the new businesses that is other then recruitment was Rs. 4.9 crores as compared to 8.6 crores in quarter two, primarily because of lower ad spend, but up from Rs. 3.2 crores over same quarter last year. This vertical includes Shiksha which is a new business which does not exist last year.
— Apart from Jeevansathi and 99Acres, EBITDA losses in other businesses including Brijj, Shiksha and the rest was about Rs. 2.9 crores

Jeevansathi

— Average revenue for paid user in Q3 is 1,640
— Total profiles ever added was 2.84 million as opposed to 2.69 million a year-ago
— The number of paid users is 24,290 for the quarter
— Jeevansathi EBITDA losses were 30 lakhs
— Jeevan Sathi the net sales grew at 27% over the same quarter previous year.
— The experiment with offline centers the pilot project continues. There were a total of 10
centers as on December 31. The Capital Expenditure per centre is about five to seven lakhs when opened. The monthly running cost per center is Rs. 1.5 lakhs per centre on the average.

99Acres
— Loss was 1.7 crores at that EBITDA level down from 2.4 crores last year.
— If the downturn in real estate continues in Q4, it is unlikely that 99acres will break even in March this year.
— 240,000 listings, of which 209,000 approximately were paid listings.
— Unique paying customers is about 3300.

Shiksha, Brijj Etc
— Brijj: 1.6 million profiles growing at about 30,000 plus per day. The situation in brijj remains the same as last quarter.
— Shiksha: has over 85,000 listings and entries on the site.
— Allcheckdeals: closed over 110 deals in quarter three, business has slowed down because of weak real estate market and fewer buyers being available.

Overall Advertising Spends
Advertising spends are down a little over 30% quarter on quarter. “So we did see a decline in competitive activity in Q3. Monster cut down their ad spend heavily. The times group, which we compete with in many spaces cut down their spend drastically. On the matrimonial side a couple of our competitors have issues in terms of cash in bank they also cut down on their ad spends.

Disclosure: I own a small number of shares of Info Edge. I shall be exiting my digital portfolio at the beginning of the next fiscal year

6 Comments

Nikhil Pahwa February 5, 2009

Spiderman: no offense taken...can you list out what elements you think we should also have considered for this story? Will add to the post. thanks.

Spiderman February 5, 2009

Nikhil, I never meant to insult you in the first place, I feel the story is not presenting the right picture, my apologies in case it looks like that. You can remove my comment in case it looks derogatory as I am not able to see an option for it. Again no hard feelings, only difference of opinion. My best wishes for you and medianama, and Infoedge too!

Spiderman: My story on why things aren't as good as they actually appear is hardly a plug, and I'll let that insult pass. the net profit is up also because of other income - they liquidated their mutual fund investments earlier in the quarter...which is why we focus on the net sales. You're right about my needing to work on understanding balance sheets and p&ls better - all in good time. Maybe someone from the company will respond to you on that.

Spiderman February 4, 2009

Nikhil, I would say there is more to your analysis, and I have two observations, you need to get more conversant with studying balance sheets and P n Ls, second try and get a neutral opinion, You know what is a good story, infoedge fudging their way to show 16% Q N Q growth on EBIDTA. Thats strange, with expense growth of exact 33 percent, and advertising reducing exactly by 33 %, Net Sales dropping by 9 % and Net profits rising by 9 %, and How??? Here is how, manipulation of P N L, show a growth in other income by 64%, to balance the 33 + 33 effect, and dont ask how? if they had x has their expenses, their expenses now are 1.3x, and if y is marketing expenses it is 0.7y now, since y is a subset of x, the cumulative effect is less than 33+33 = 66, of around 40, with 9% sales down, and 64% increase in other income, their is 16 % EBIDTA (40 + 9 + 16 = 65), which is roughly equal to 64%, which is increase in other income. Since infoedge can never reach last year number of 220 cr, with 17 cr other income, to impress upon this number, they have to show a substantial growth in "other income" as sales are going down, which has to be the interest and other sources, which are highly manipulated, just to suit the Q n Q growth. With market cap on 1100 cr, looking southward since some time, this will get exposed. infoedge is the best internet company in India, without doubt, but your analysis and interview is a plug....

sasa February 4, 2009

erere

Mahesh February 3, 2009

Excellent Analysis

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