Why Affle India Share Price is Falling

After reporting highest ever quarterly revenues in the June 2022 quarter and seeing a sharp spike post that in August, share price of Affle (India) has hit a rough patch.

Affle (India) shares have fallen over 9% in the past five days. In the past one month, shares are down over 15%.

Some of the selling pressure can be attributed to the stock moving in tandem with the broader market.

Indian share markets have seen a correction in recent days as investors are anticipating a rocky road for China's unwinding of Covid-19 restrictions and amid prospects that US interest rates will rise higher than expected in 2023.

But apart from the above, there are a few more reasons as to why Affle India is falling.

Let's take a look at the reasons behind the fall and what the prospects look like for the disruptive tech stock.

Why Affle India is falling

#1 Slowdown in ad spends

Let's understand how Affle India makes money first. The company derives 85% of its revenue share from user conversion.

Conversion is the final action that advertisers want from users. It could be a first time buy, a repeat transaction, signing up for an event or publication, registering for an offline event, installation of an app, and so on.

Affle India's key revenue driver is not based on views or clicks on ads, but a desired outcome for the ad agencies or brands.

The company charges advertisers every time a conversion happens (cost per converted user). The higher the conversions, higher the returns for advertisers...and higher the revenues for Affle India.

As things stand now, there has been a slowdown in advertising and marketing spends globally. This has hurt social media and tech firms. Affle India is no exception.

The slowdown comes as companies are seeing cost inflation in different verticals of their business. So, this should not come as a surprise that earnings of ad-based companies have slowed down.

In a recent interview, Affle India's Chairman and CEO Anuj Khanna Sohum said that negative geopolitical and economic factors have caused headwinds which had an impact on their Q2 earnings.

Here's an excerpt from the interview:

• We could have had $3-4 million more revenue in H1 this financial year than we have.

Also, the company derives a large chunk of revenues from emerging markets. Khanna also pointed out in the interview that there are small vertical issues in emerging markets.

• Ed tech had an issue, crypto and fintech had an issue and we have seen budget drops in these areas.

#2 FII selling

Foreign institutional investors (FIIs) have remained bearish on Affle India for quite some time now. They have sold stake in the company for five consecutive quarters.

In the most recent September 2022 quarter when mutual funds added a decent quantity, FIIs sold shares of Affle and brought down their stake from 14.69% to 14.21%.

FIIs on a selling spree

Qtr. Ending	20-Dec	21-Mar	21-Jun	21-Sep	21-Dec	22-Mar	22-Jun	22-Sep
FII	14.85	17.28	18.25	16.14	15.66	15.4	14.69	14.21

Source: Equitymaster

To know more, check out Affle's latest shareholding pattern.

What next?

While ad spends have fallen in recent quarters, the company's management has provided a good update for the next two quarters.

• In the festive quarter, the advertisers who are more bullish will spend more in Q3 but some of the advertisers would take that incremental budget and split it quite balanced over Q3 and Q4 and H2. So, we would see a more balanced Q3 and Q4 and if we see it on a H2 versus H1 basis.

When reporting its Q2 results, Affle India's management gave a revenue growth guidance of 25-30% CAGR (compounded annual growth rate) over the next five years considering robust demand and rising mobile consumption.

The company is now looking to raise funds for inorganic growth. A board meeting was scheduled last week to consider the proposal but there aren't any updates on this front.

How Affle India has performed recently

In 2022 so far, Affle India shares are down 5%.

The stock has fallen over 9% in the past five days and over 15% in the past one month.

Affle has a 52-week high of Rs 1,510 touched on 14 January 2022 and a 52-week low of Rs 871 touched on 26 May 2022.

At the current price of Rs 1,076, the stock trades at a PE multiple of 58.5 and a price to book value of 10.7x.

About Affle India

Affle is a global technology company with a proprietary consumer intelligence platform that delivers consumer engagement, acquisitions, and transactions through relevant mobile advertising.

The platform aims to enhance returns on marketing investment through contextual mobile ads and also by reducing digital ad fraud.

While Affle's Consumer platform is used by online and offline companies for measurable mobile advertising, its enterprise platform helps offline companies to go online through platform-based app development, enablement of online-to-offline (O2O) commerce and through its customer data platform.

For more details about the company, you can have a look at Affle India factsheet and quarterly results on our website.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...