This is my submission for the Investomania contest that is running currently in the office, I’ll be happy to address any comments or questions people may have.
Company – Info Edge
Country – India
Market Cap. – USD 865.0 million
India’s leading online recruitment and classifieds portal (Naukri.com) launched in 1997 is operated by Info Edge, which forms the backbone of Info Edge’s business (recruitment services accounts for about 84.0% of company revenues). It also generates revenue through a matrimony website (Jeevansathi.com) and a property website (99acres.com), which are still in the development phase. The company has also invested in an education portal, Shiksha.com.
With about 60.0% traffic share, naukri.com is the market leader in online job portal market. The company has retained the leadership position since its inception in 1997 despite emergence of several competitors like Monster.com. This points to the strong and capable management team, deep corporate relationships and strong sales initiatives of the company. The large number of resumes and corporate relationships places the company in a unique position to benefit from broad based economic growth, improving hiring environment and increasing internet penetration.
99acres has leadership position in real estate portal market with about 50.0% traffic share. The portal gained meaningful market share during the downturn as the traffic remained relatively stable for the company, while competitors witnessed meaningful traffic decline. Jeevansathi is at number 3 in terms of market share, but management points out that the focus in this segment is on specific communities and regions, where the portal is doing relatively better. Jeevansathi generated about INR 200.0 million in revenues in FY10. Info Edge has also started a professional networking site – Brijj and a real estate properly site, which allows buyers/sellers to check transactions, allcheckdeals. These websites are still at a very nascent stage and have a potential to grow, which has still not been factored in the stock price.
Internet penetration has increased in India at a CAGR of 33.0% from 2000 to 2009, as it has started penetrating the smaller towns and villages in the country. However, still penetration is less than 7.0% of total population, which is minimal compared to 38.0% in Brazil and 50% in Chile. In smaller towns, where the largest chunk of population lives, the penetration levels are dismal, as number of internet users in top 8 metro cities is almost equal to the number of users in all the towns with less than 0.5 million population. However, the penetration levels have started to pick up in these areas over the last few years, and these should be the primary driver of internet user growth in the coming years.
Internet advertising spending is at about 4.8% of total advertising spending in India. The total Indian advertising market is about USD 5.0 billion, out of which less than USD 250.0 million is through internet. The worldwide average for proportion of internet advertising is 10.5%. Industry research firm IDC expects internet advertising spending to quadruple to USD 1.0 billion over the next five years, making up 16.1% of the total advertising spending. Hence, the total pie is expected to increase at a strong 35.0% CAGR over the next 5 years for the companies operating in internet advertising business.
Info Edge is still at a very nascent stage and has a huge potential to grow. The company is expected to grow with the growth in internet users, growth in internet advertising, growth in market share, and the launch of new businesses. The company also makes revenues on a commission basis from recruiters which would increase considerably in boom times which again is an additional bonus. With EBITDA growth expected to be around 25.0 – 30.0% CAGR in the next three years, according to J.P. Morgan, I can bank on Info Edge to double my money in three years’ time.