OnMobile Global

Onmobile reported a profit of Rs 7.2 crore, as it continued to cut costs, bringing employee cost down to Rs 62.5 crore, and cutting additional perks and on-site expenses. On the conference call, company execs said that “manpower cost has been further decreased by 15%, as a result of the rationalization. Our headcount number has further reduced to 1180 (at the end of last quarter, it was 1217). ” The cut has across all functions and the company said that it has “been aligning all the processes across global operations. There’s been rationalization of travel, and facilities costs at locations. All contracts have been revised, revisited and reduced. We expected the savings to flow over both the quarters (Q3 and Q4), and operating expenses will stabilize at this level.”

“EBITDA has grown by 67% over Q2. We’ve gotten an EBITDA margin of 25%.”

The company now doesn’t see a substantial trigger for a change in its cost base, but as it rolls out a new product, which CEO Rajiv Pancholy described as “Huge”, but declined to talk about what exactly it is, the company says that capital expenditure (CapEx) will increase, gradually. “This will be a limited scale entry.”

Notes from the concall (somewhat paraphrased):

Content costs and RBT

“We have continued to grow our business on a daily monthly and quarterly basis. We’ve added to the customer base. Fairly recently, we crossed a threshold of 16 million paying RBT subscribers, and one quarter ahead of our own internal schedule. ”

“The content cost has gone up, and what happens is that the margins improve over a period of time. We’ll see gross margins at a company level improve by 2-3%, which will be driven by volume growth.”

“We’re a significant buyer of content globally, especially music, and a senior executive has been hired who has to renegotiate the content costs on a global basis. We are responsible for acquiring content so it shows up as a part of our gross margin. If you look at the last two quarters, our gross margin has come down, but this is the lowest that we believe that you’ll see our gross margins at.”

Outlook on growth and the capital needs to generate that growth

“Each one of our regions is looking for growth, and we’ve seen a very healthy growth in Europe. We’ve seen some reduction in Africa. These are market specific fluctuations. We don’t require that much capital on the basis of our existing product portfolio, but we’ll require CapEx when we roll out new products. The non RBT business has grown a lot faster than the RBT, and growth is coming from Europe. What we’ve done at RBT is somewhat stale, and what we roll out will make a difference.

9 Month CapEx this year was Rs 9 Crore. In the last quarter of the year (Q4), it will not be more than Rs 5 crore.

Converged VAS: is the competition intense and is Onmobile indispensible?
“Indispensable is a pretty large word. We are a key player in content VAS. The pie is pretty large, and the storefronts get aggregated to a vendor like us. We are a key player in that market. It’s millions, and at hundreds of million for the operator and we are a subset of that ecosystem.”

Note: what is converged VAS? When we had asked Pancholy last quarter, he was evasive:

“It’s a bundle of offerings and content that consumers like to consume. Mobile consumers include things like wall papers and other things people use to dress their smartphones and information they like to get. But that’s the extent to which I should go into describing the product. This is turning out to be quite a growth story in Europe principally at this point in time, but also in Africa.”

If it’s wallpapers, ringtones etc, then ‘Converged VAS’ just a fancy name for content, and there are avenues other than operator stores for this.

LatAm renewal
“We’re in the fourth year of a five year contract, and hopefully, in the next and next to next quarter, we’ll get back with updates.”

Revenue split
– LatAm is 20-23%. Developed Markets is 40% of revenues. India is 23%. Emerging markets is rest.

Currency fluctuation uncertainty
– The one unknown for us is that there is currency fluctuation going on right now.

Livewire nears breakeven

We’re close to a breakeven situation, and expect to a fully breakeven point. When we acquired Livewire, it wasn’t just for the US market. We got a platform that is driving Europe for us. We’re on track to be EBITDA positive. There’s a lot of new growth coming from this platform. Revenue has gone up over Q2. The growth in CVAS in Europe is linked directly to the platforms that we acquired with LiveWire.