This Brokerage Initiates Coverage With A Buy Call; Sees 30% Upside

Brokerage house B&K Securities has initiated coverage on internet stock Affle India with a buy call. The broker has a target price of ₹1,354 for the stock, indicating a 30 percent upside in 12 months.

The broker said that Affle’s two-decade journey into the mobile-first space has culminated in its deep integration with players across the mobile advertising landscape.

“What started over SMS turned into real-time targeted advertising across ~2.8 billion devices. Today, Affle is at the forefront of mobile performance marketing. Its technological strength enables assurance of user conversion. This leads to its key strength – monetization only on users taking definite action on an ad, and not on mere clicks or views. This model is known as CPCU, or cost per converted user model. This puts Affle in a position of tremendous leverage over advertisers, as it KPIs -delivery guarantee. The competition in general remains without such an offer,” the report explained.

Affle (India) Limited, together with its subsidiaries, provides mobile advertising services through information technology and software development services for mobile phones in India and internationally. It operates through Consumer Platform and Enterprise Platform segments. The company provides resale services of advertising space for online publishing companies; and custom mobile app development services. It was incorporated in 1994 and is based in Gurugram, India.

Affle India share price trend

Rationale

The brokers emphasized that Indian internet stocks should focus on two essential characteristics for a behemoth: Cash cow and positive unit economics.

“Affle (India), a consumer technology company in the form of an advertising technology platform satisfies both. Affle has built its presence in various layers of the digital advertising ecosystem. It has foreseen that the market has evolved towards mobile – only a decade ago. This led to the development of monetization via the cost per converted user (CPCU) model, which proved to be a game changer. Execution capability maintained despite changing environment and regulations,” the brokers said. pointed out.

It further highlighted that spending on mobile-first digital marketing is poised to grow the fastest among media channels, adding that a shift in consumption patterns and preference towards targeted advertising is driving it. Affle is further expanding its use cases via its 2Vs (verticalization and vernacular) and 2Os (operators and OEMs) strategy, which is positive for the firm.

Affle also monetizes via the CPCU model, where it only charges advertisers for meeting campaign KPIs, allowing control over pricing as attribution is proven. Excellent RoI in retargeting will ensure business longevity as KPIs there are even tighter, the broker added.

What does Affle India do?

Explaining what Affle does, B&K noted that it provides a platform to help businesses acquire, engage and transact with consumers, primarily through mobile-first digital marketing. The company uses its historical data analysis and insights about consumers, including their preferences, habits and behavior. This information is used to help businesses better target users. The true MOAT lies in the ability to stay ahead of the curve in data insights and maintaining CPCU rates despite market volatility, he added.

The broker informed that Affle had a mobile-first approach ahead of its peers, and this is evident from its mobile monetization partnerships undertaken as far back as 2009. This was followed by a mobile marketing agency and a mobile marketing platform over the next five years. Finally, Affle launched its own proprietary platform that offers the entire palette within the advertising ecosystem.

By 2017, Affle had its own data management and fraud detection platforms. It laid the groundwork to provide mobile-first, targeted advertising via its own proprietary stack. As the Jio-led digital revolution took over, Affle significantly strengthened its capabilities. This was done through a mix of organic investments and inorganic acquisitions, B&K explained.

Furthermore, Affle has undertaken several acquisitions over the past five years. It has largely delivered on its committed strategy, both in terms of the type of acquisitions and its turnaround. The company has held talks on various acquisitions such as Appnext, MediaSmart and JAMPP, the brokerage informed.

“The acquisition strategy has been to take over strategic fits, which offer either new geography or deeper vertical integration. The company should have differentiated technological capabilities, but faces.

challenges to break the glass ceiling. Companies in this lovely place are available at reasonable valuations. This is then turned around to deliver double digit margins within 24-30 months. Similar prowess has been seen in earlier acquisitions as well,” he noted.

Key assumptions

The company will continue to grow ahead of overall ad spend growth supported by market trends and its differentiated offering. The most important assumptions by the broker are as follows:

Source: B&K Sec

B&K’s FY40E estimates imply that Affle market share in India is only 5.6 percent. It will be even lower for the world market. Affle market share gains are already visible over the past few years as the digital ecosystem has matured, it noted.

Relative valuation

According to the broker, Affle trades at a slight premium to Tradedesk – the global self-service digital ad delivery powerhouse. Among the consumer names, Affle trades similar to some bigwigs. This is largely a function of higher growth in a consumer-centric space, thus also providing assurance of continued cash flow. The main risk remains in the execution of the campaign in the wake of changing regulations, B&K added.