Mobile VAS and ringback tone company OnMobile has reported a net profit of Rs 9.33 crore for the June quarter after narrowing losses steadily from the previous quarters. OnMobile has been shutting down non-core businesses and moving to a new business models and developing products for the same. In a call with analysts, CEO Rajiv Pancholy and senior management talked about how the company is achieving the same.
1. Sprint deal: OnMobile announced that it has entered into a deal with US-based carrier Sprint for their ringback tone service. However, under the new deal existing customers of Sprint’s ringback tone service will be transitioned and become OnMobile customers which will take on the responsibility of marketing the service.
“Sprint will obviously remain a partner and then provide the vital customer billing service,” Pancholy said. “As compared to the traditional wide level B2B model that we have pursuit in the past, a much larger percentage of customer spend will now be booked as OnMobile’s revenues….. With this, we will have the freedom to introduce new features and new capabilities rapidly and most importantly have a direct connection with the end consumer to understand the needs and to respond to them in a timely fashion,” he added.
Pancholy also elaborated on why they were shifting to a more consumer-focused model using India as an analogy. “But in general for every, let’s say, rupee that is spent every Rs 10 spent by the customer in India about 15% goes off in taxes. Of that, then it gets booked by the operator who actually then is responsible for the entire set of lifecycle management and also paying for the content. And the end of that OnMobile gets a share which is typically in the lower double-digits or the higher singledigits of the money that was spent by the consumer…. Now, with the new model that we are striking the situation almost reverses where the bulk of the revenue and it’s very, very high numbered as a proportion, high percentage I would say, accrues to OnMobile,” he added.
2. Focus on North America: Pancholy explained that average spend on per use in the US is higher than any other geography in the world, apart from Western Europe. “One of the geographies in which OnMobile has been historically very weak is North America. I think this is a well-known fact. And when we look at this to the prism of all the currency fluctuations and all the currency repatriation issues we have, there’s one part of our way which is we must grow our business in those geographies where we don’t have these additional problems. So certainly North America from that point of view is fertile ground. It’s a geography in which it will put a lot of energy,” Pancholy said.
3. New products: OnMobile said that it would be rolling out its new products in different geographies over the next 12 month. Pancholy added that there will be a lot of marketing costs associated with it. “As we actually introduce the product in the marketplace, there’s a lot of marketing energy and cost associated with that the goods start to impact the P&L. So at that point in time you will see the impact of the additional incremental as well as incremental cost,” he added.
Last year, OnMobile spent two percent of its revenue on developing its new products strategy and brands for the quarter ended June 30. “Operating expenditure has gone up from Rs 31 crores to Rs 33.7 crores in the quarter mainly because of new cost which we have started incurring on the new products strategy and the new brands,” chief financial officer Praveen Kumar told analysts
4. Exiting Vivo: OnMobile’s Latin America revenue down by 10.7% q-o-q and 38.7% y-o-y respectively in the June quarter. This was due to the company’s inability to reach a long term arrangement with telecom operator Vivo, Brazil.
“If you go back several years ago when we first sort of went up for the Latin American market, one of the strategies that OnMobile adopted was to pay very, very large upfront fee to acquire this customer base, to acquire these customers and find the deals. That has haunted us for the last several years,” Pancholy explained. “So we actually made a very clear decision that unless the total equation makes sense for OnMobile we will not pursue that kind of a strategy anymore. So when we came to discussions about the renewal of a contract with Vivo, we had to keep that in mind and take a very firm position that we will not play the game of being the lowest bidder in providing large upfront fees to win the business,” he added.
Praveen Kumar estimated that on an annual basis, a revenue of Rs 35 crore would be impacted and on the profitability, around 20% of this.