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Rediff.com India Limited (REDF) is a small, India-based Internet company that has been listed on the U.S. stock market for more than a decade. The company got listed during the dot-com boom, but has failed to provide any returns to investors. The company has participated in every new Internet opportunity but has failed to make a mark in any of them. The company's biggest asset is its Indian portal rediff.com, which provides news and information on a wide variety of verticals such as movies, sports, current affairs, etc. The company's stock saw a price surge in 2011 when it started a discounted coupon buying scheme. However, this venture like the company's other efforts fizzled out and the stock is currently trading near its all time lows at $2.5. The company has invested in the e-commerce sector but again the competition is extremely high in this sector in India and rediff.com does not have a big brand recall (at least in e-commerce). Smaller e-commerce outfits are shutting down as the industry is consolidating around the strongest players such as Snapdeal, Flipkart, and Myntra, etc. I don't think Rediff is a buy given its past history and management. The company has failed to capitalize on India's under penetrated internet industry, despite being an early mover of the game.

What does Rediff Do?

Rediff operates in 2 segments. The first segment consists of a number of Indian based internet services such as email, information services etc. however this segment is like a "Jack of all trades" without being a master of anything. Though the website has got a good PR and Alexa rank, the company has been not manage to generate overall group profits. The company's other segment consists of running publications for the Indian Diaspora in the USA. Rediff.com used to be a popular website for the Indian expatriates in the USA. But in recent times, that popularity seems to be waning.

Rediff Issues

  1. Financials - The company's income statement is a mess with revenues declining by ~35% in the last five years to fall to $16 million, while the company has consistently made losses between $6-11 million. The company has a decent amount of cash on its balance sheet but that too has more than halved over the past 5 years ($59 million falling to $25 million) as the company has continued to burn cash.
  2. Lack of Focus - Rediff.com has failed to focus on one Internet segment. Companies have concentrated on one segment such as classifieds (Just dial), online jobs (Naukri.com), travel [Makemytrip (MMTY)], etc. and have seen huge success. Rediff on the other hand has tried its hand in multiple areas without being successful.
  3. Competition is rising - The Indian market is very different from China as the Indian government does not impose strict censorship and the American companies dominate a lot of the verticals. For example, Google (GOOG) dominates the search segment and EBay (EBAY) and Amazon (AMZN) are all set to capture a large part of the e-commerce vertical. The Indian internet companies are also highly competitive and there are a number of strong players in each segment. Rediffmail used to be very popular earlier but now foreign email providers such as Gmail and Yahoo (YHOO) have captured the majority market share.
  4. Indian online revenues are declining - Rediff reported a decrease in "Indian online" revenues that is mainly advertisement revenues from its website. The overall gross margin also declined by 8 percentage points despite the company making cost cutting efforts. The company's other segment "U.S. Publishing" also suffered a big decline.
  5. The Indian economy is in a bad state currently - The Indian economy has seen a sharp slowdown in recent times like rest of the emerging markets. The GDP growth has almost halved to ~5% and revenues and margins for most companies have declined. This has also hurt Rediff.com which depends on corporate marketing spends for its revenues. A recovery is not expected before the next general elections in 2014.

Rediff upside risks

  1. India's large under penetrated Indian market - India has a population of more than a billion citizens most of which do not have Internet access. However, the internet penetration in India is growing rapidly as e-commerce portals are managing to beat the brick and mortar retailers on prices. This advantage has rapidly increased e-commerce sales in price conscious India. Rediff has been present in this market for a very long time but has failed to be successful.
  2. E-Commerce prospects - The company is making a big push into E-commerce and it showed a sharp 20% plus growth in the last quarter. However, the e-commerce space in India is already crowded and there are a number of bigger and better players. EBay and Amazon are also starting to ramp up their operations in India and I don't think Rediff will be able to succeed.

Stock Performance

Rediff has traded in a range between $1.82 and $4.65 in the past year and is currently trading at $2.51. The company's performance has been abysmal both on a short term and a long term basis. The stock has given a loss of more than 90% since its IPO and has lost 38% in the last one year. As can be seen in the graph below, the stock sees occasional spikes but remains a very bad investment for the long term investor.

REDF Total Return Price Chart
(Click to enlarge)

REDF Total Return Price data by YCharts

Stock Valuation

Rediff is not cheap despite trading near its low, with a P/B of 2x and a P/S of 8.8x. The company has not only seen a revenue decrease in the past three years but has also seen its losses mount during that period. The company has got a market capitalization of ~$75 million, which seems high to me given the company's performance.

Summary

Rediff has failed to capitalize on the number Internet opportunities in India over the last decade. Many companies have made it big in the Indian market despite starting much later than Rediff.com. The company has tried its hand at many things, without succeeding in any of the new ventures. Now even its bread and butter Indian focused online segment is showing a decline. Despite the low stock price, the company seems expensive. There is also the problem of a continuous cash burn as the company has been registering losses for the last 5 years. Though the stock has shown price surges in the past, they have fizzled out every time. I would not buy Rediff.com given its past performance

Source: Rediff.com - Jack Of All Trades, Master Of None