Today we’ll talk about Affle India today we will talk about the business model , financials and valuations
HISTORY OF AFFLE INDIA
The company was founded in 2005. Affle comes from ” Affordable Mobile ” Their goal was to focus on mobile advertising and it’s the same goal even now.
As you may know , in 2005 people used their phone for SMS and calls and you can’t place ads there so the company was advanced for it’s time. Things have changed now as they are ads being placed between videos and games let’s take a look at the management .
FOUNDER OF AFFLE INDIA
There are two main founders
Anuj Khanna ( Managing director )
They used to study together in school Anuj Khanna founded a tech startup while he was in the second year of his engineering, and sold it to a public company in his fourth year. Now let’s talk about the business model. As I mentioned before , the majority of their revenue comes from mobile advertising. Let’s talk about advertisement.
In the past , if you wanted to place an ad , you would chose between TV , radio or a banner So you would always look at the price and decide according to your budget . You would also check the audience it would reach. So you already knew if you would place an ad in a famous channel , it would reach more people. Nowadays , the process is similar. Just that you have more options available now .
Keep in mind that we are taking about mobile advertisement. So you can place an ad in a website , game or video among other options Affle India can help you with this. They can choose the perfect medium for you . They will also help you reach your target audience. This is their consumer platform which contributes 97 % to their revenue Let’s understand why target audience is so necessary.
Let’s imagine that I make chocolates and I want to advertise my product so I make my own ad. and I place that ad in such a place where nobody is interested in chocolate. Of course , that ad won’t be successful and people won’t buy my product because they don’t care about it but if I place that ad in such a place that I reach people who re interested in chocolate , I can sell my product That’s why it’s very important that when you place an ad.
you target to people who are interested in that subject So you might be wondering , how can you target people ? How does Affle know who should they target ? Affle gathers data through various sources. This data tells them what people are interested in . Let me explain one source of their data. As I explained before , this company started in 2005 and they have placed several ads for their clients .
Let’s imagine that they placed a chocolate ad in the middle of a game and you click on that ad. This shows them that you are interested in chocolate . Or maybe I place another ad and you click on it and decide to buy the product. This shows me your interest in that product and this data is very important for Affle. So if in the future, they get another chocolate company as a client, they already knew who they should target based on the past data they got from their previous ad This data helps them understand what you are interested in and they can place ads accordingly .
Let’s try to understand the type of ads they make.
TYPES OF ADS IN AFFLE INDIA
The ads they make fall into three main categories.
3.ONLINE TO OFFLINE
The first one is dynamic ads. For example, they can help you place an ad in the middle of a game. They have their own platform to make these ads.
The second type of ad is retargeting. This is for users who have dropped off a website without making a purchase You might have noticed that when you open a new site, you see an ad with the same product you didn’t purchase. This is known as retargeting .
The third ad is online to offline. Many times , you might have seen the product on the website and they give you an option to pick up the product in their store This is very common with shoes and jewellery as many people prefer to see this in person before buying. This is known as online to offline .
There is one more thing left about their consumer platform . Frauds is a very big issue with digital ads. If you place an ad on a website , people can make softwares that can keep clicking on your ad. You might start thinking that you ad is doing very well because people are clicking on it but it’s fake because they didn’t buy anything At the end , you will pay for nothing and it’s a waste of money. That’s why Affle has their own platform that can help you detect frauds in real time .
They have filed for 10 patents as well. In this case, it would tell that someone has clicked 20 times on your ad and we think it’s fake because there hasn’t been any transaction after it and you can make changes accordingly .
Now let’s understand how do they earn money with ads. They follow cost per converted user method. Let’s image that I want Affle to place an ad for me and I have a chocolate company so they place an ad in the middle of a game .
That ad reaches 5 people. 4 of those 5 users ignore the ad and they don’t interact with it . Affle won’t charge their client for those 4 users. the 5th user will click that ad and buy that product . Affle will charge for that one user because that is a converted user and he did what you wanted.
You want the cost per converted user to keep increasing . At the moment , they charge 41.3 Rs per converted user. but in the future , if they can charge 70 Rs per converted user , they will be able to earn higher revenue plus you want them to convert more people because in the previous example they were able to convert just 1 person but if they would convert 5 people , they would earn higher revenue more than 90 % of their revenue is based on the cost per converted user method.
The second platform they have is enterprise platform and that contributes only 3 % to their revenue They help help offline companies increase their online presence.
This can be through a commerce platform or an app that can make transactions faster and easier for the consumer.
FINANCIAL OF AFFLE INDIA
I will start with the balance sheet. This company has 158 crores in assets and 85 crores of liabilities.
You might be thinking that this is a very high number but their actual borrowings are only 8 crores Let’s take a look at the income statement.They went from 167 crores in revenue to 249 crores in 2019 They went from 27 crores of profit to 48 crores in 2019 their margins increased from 16 % to 19 % in 2019
VALUATION OF AFFLE INDIA
The company posted 32 crores of free cash flows. Free cash flows tells us the amount of money the company earns at the end of the year. They have great margins as it’s an asset light business model . As a mater of fact , they have rented their offices instead of buying it I have two main issues with this company. Firstly , despite their growth , I think the company is very expensive .
They posted good growth in their recent quarter as well. Secondly, this company relies on data as that helps them target the ideal customer. but here they are competing with very big companies that have ore data than them.
This company earns more than 50 % of their revenue internationally but I don’t like the fact there are other companies that have more data than them internationally and you can buy them at a cheaper valuation and that’s why I won’t invest in this company If you would like to analyze companies just like I did Affle India for you and if you would like to value them