Loading ...Interesting coverage on rediff - its now at $24M enterprise value. As much as for a long time, Rediff commanded high valuations that few could explain, it now seems to have gone in the other direction. Would love to get people’s views on whats happening here.
As a bellwether for Indian internet industry, these numbers reset expectations on the entire sector and near term expectations. Naukri is just over $200M on EV, which I do believe is healthy because of their earnings (P/E ~ 20).
I also wonder what series B valuations for Internet companies would be now - till 12 months back, companies with less than 200K users and zero revenues were getting $24M valuations…
Wait for the year to end, even this number should seem steep. [BTW that report puts Rediff valuation at $55 MM, not $24 MM as you do].
In these turbulent times when valuation paradigms are shifting fast, do the old norms like PE multiples still hold? Who can guarantee a Naukri.com continuing to earn EPS of Rs.21 (which is trailing 12 months number) going forward? In the same vein, how can one be sure if it will be rewarded with a 20x that it commands today? How are we to judge the direction of realistic online ad spends that should benchmark the revenue prospects of these firms? McKinseys of the world will eventually come up with some numbers but we all know they do that for a living. Till then we all go by broad indicators - major online advertisers like Airlines and Automobiles declaring consistently bad quarterly numbers. India’s IT vendors that spawned recruiters by the dozen, major users of Naukri, are no longer bulk hirers they used to be and that spells bad for recruitment portals en masse.
So what’s left? The only respectable valuation parameter is the old fashioned revenue/profitability growth supported by real cash flows and that leaves not many players in the fray. That scarcity should promise some valuation upside, if at all.
Valuation is no longer a founder’s (or seller’s) prerogative as it used to be. The investor’s (or acquirer’s) endorsement is respected more now. A simple guide currently followed by leading PE investors is to cut current stock price by half (invariably means halving EPS and PE multiples as well) to arrive at fair value over next 12 months… That explains the incidence of fewer transactions as well.
Message to investors - don’t hurry into series B, you can badger them down still
the evaluation of rediff may not be fair.
Krish - $55M is the target EV for the business as per the report - the current is indeed $24M,
Alok, companies like google enjoy a PE over 45-50.
IMO, unlike public companis,the valuation for startups (specially < 3 years) is much more than PE as they havn’t realized full potential.
Totally agree Jaspreet - if startups were to be valued on P/E, they’d pay investors for participating
None of the companies mentioned above (rediff, naukri, google) are startups though…
http://www.bloomberg.com/apps/news?pid=20601109&sid=afu06n0L7LZ4&refer=home
“Twitter Shuns Venture-Capital Money as Startup Values Plunge”
Valuations are definitely coming down, as per that article.
Goog itself is now at $291, which is a P/E (trailing) of 18. The excel sheets must be showing a very juicy forward P/E, except, wait, the ad revenues are all suspect now. Recessions hit ad spends hard.
Naukri is still at a 20 P/E which astounds me, but stranger things have been known to happen. Naukri’s EPS growth is less than 10% - at least for half the Financial year - and is on line for a very flat year. Jobs and real estate markets are both in serious declines, so a 20 P/E on a flat earning potential is definitely not sustainable.
Web18 is the another big player, part of TV18 (or Network18?) and in their last quarter they have a 24 cr. loss (losses are increasing on a quarterly basis) - gasp! the P/E is anything you want it to be - there is no E. Share price is down from 568 in Jan 08, to 71 yesterday, and that too for a company that contains the web properties (gazillions of them), TV channels (CNBC TV18/Awaaz) and Newswire+Yellow pages.
So internet valuations definitely look like they’re down.
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Numbers apart, I have engaged in fair bit of discussion and debate about Rediff’s business itself.
The opportunity that both, Rediff and Indiatimes had, as early mover portals for the Indian web market, has not been capitalized on. Whereas both offer a whole host of services, I cannot honestly think of even one vertical where they could be called as leaders. Be it recruitment, matrimony, news, search, email, real estate, cricket, bollywood.. in none of these, either of them has leadership. They both continued to build width at the cost of depth, not seeing when the game changed. As the user became more mature, he abandoned the gateway (which has its origins in the AOL / Prodigy legacy days) and went straight to the vertical leaders. Or went to the search engine to find the leaders. Not creating leadership in any of the verticals has hurt them both, I suspect.
Here is also where I believe that Yahoo (US) is different, and in spite of being a general purpose portal, it has managed to create leaders in few of its verticals, either organically or by acquisitions. And which is why they still continue to have a play, even if its been getting tougher by the day, for them too! The investment in supporting the non-leadership width is hurting them too.
Perhaps like GE in the offline world, they will wake up one day, and decide to be only in those areas “where they are no. 1 or 2″ and shed everything else!! They may yet be better off in doing so.
If Rediff and Indiatimes do not bring out significant change, I do not know whether they could command any relevance, in the next 3-5 years. Given their current preeminent positions in terms of traffic, this may be treated as questionable, but I think its a reality.
And yet, if they think boldly, there could be a clear game for them.
Portals are less relevant for a mature user. But unlike in the mobile space, India still has a long way to go in the penetration of Internet user base. The user base has to multiply from where it is, which means, there are more new users who are going to come to the Internet for the first time, as compared to the number that is currently there. And they will be the newbies looking to be guided. If Rediff / Indiatimes chooses to make it their mission to be relevant for these new users who are still to come on to the Net, or are coming in for the first time, they may benefit from the strategy. Relevance in such cases could be by means of going local in tier II / III towns from where these new users are likely to come now, by getting into regional languages, by providing specific services to these new users (education for example is such a big priority even in small towns of India; they could potentially go big time into the regional language, online education space or variants of the same and achieve leadership there), etc.
If that does not happen, I would not be surprised by continuing receding valuations of both of these players!
Too much of gloom and doom. My understanding is that current liquidity crunch will subside in next 6 to 9 months and will have a beneficial impact on the India Economy. Why do I sound bullish : COST OF DOING BUSINESS IS DOWN
a) All commodities including Oil is down
b) Talent is no longer scarce
c) Rental and Real Estate are down
d) Freight rates / travel rates are down
e) Expectation on salaries are down
Most Importantly, the bad debt is in Domestic sector. Most of Real Estate Debt is in Homes (marketable titles) not generally mired with several layers of ownership. Had this been a corporate debt disaster the recovery would have been far slower. A note of caution, if liquidity doesn’t improve, corporate debt may become an issue. However, never before in history of this world all major economies from Saudi, Chinese, US, Europe, India etc. have got together to get out of the crisis situation.
This is just a preamble to my arguement that as earlier valuations were out of sync so are the current valuations. Businesses in internet space will continue to deliver consumer value and hence investor value. Issue with Rediff is that it is everything for everyone (undifferentiated mass). Verticals will continue to perform well. Internet will have to seemlessly move into mobile space to multiply reach and revenues.
24M valuations for spreadsheet presentation were completlely out of sync with any risk assessment methodolgy.
The biggest Media company in India will be in Internet and Mobile space due to sheer reach of these vehicles. In that case we may see a Billion dollar Internet / Mobile Media business in next 4 to 6 years time horizon.