Rediff's Acquisition Discussions May Be Driven By Growth Concerns

Rediff (Nasdaq: REDF) is reported to be in acquisition discussions with Google (GOOG) and Yahoo (YHOO).

The company’s stock moved up to an all-time high of $27.50 per share on July 12 from $17.94 on July 5. The trading volume increased to more than a million shares from an average of 50,000 share a day, and has since settled in the 700,000 range.

No one can blame Rediff for not putting a finger in nearly every conceivable online pie related to India. The one that was missing thus far has been fulfilled a few days back when it launched ‘iShare’, a social content sharing platform where one can share videos, music and images.

To analyze Rediff in terms of all that it offers is a tough call. A look at its website reveals that it has content search facility categorized for such unlikely items as ringtones, classified ads, Indian stocks, comparing mobile phones, and so on.

But Rediff has more diverse offerings. If Rediff Mail, a free and paid email service, is one of the oldest, there also are those like online shopping, matrimonial service (Rediff Matchmaker), blogging (Rediff iLand), community-driven knowledge sharing service (Rediff Q&A), and domain/web-hosting service among others.

There are so many services that Rediff offers, but does it dominate any of these? The answer is perhaps an unambiguous ‘No’, though no clear figures are available to say that for sure.

It’s tempting to say Rediff is a content portal, or vortal (vertical portal) if you will. But the myriad products it has do not mesh into a seamless content platform. Many of these products are rather results of knee-jerk reactions to new online inventions than parts of a well-planned strategy to grow.

Rediff’s revenues for Q4/06-07 (ending march 31, 2007) totaled US$ 8.48 million, an increase of 66% over similar figures a year back. Of this, its India Online revenues made up US$ 6.30 million, which is an increase of 76% over last year’s. The balance of US$ 2.18 million came from US Publishing revenues. The latter increased by 42% over the same quarter in the last financial year.

Its annual revenues ending March 31, 2007 have been US$ 28.68 million as against 18.70 million in the previous year, an impressive jump of about 53%. After a prolonged lackluster trading at sub-20 level, the company’s ADR recorded a 52-wk high at 27.50 in response to iShare launch and the takeover speculations, on a market cap around $740 Million.

In its SEC filings, Rediff does mention that online advertising continues to drive growth for the company. The main categories that contribute to the company’s advertising revenues are employment, matrimonial, finance, travel and IT products.

Incidentally, Rediff also owns India Abroad, the oldest and largest Indian weekly newspaper targeted towards the Indian Diaspora abroad.

Rediff’s strength is its 53.6 million registered users (as of March 31, 2007), which is an increase of 25% over previous years’. The point that remains is that Rediff lacks a dominating niche, and there is no firm indication that this may be in the works.

It’s somewhat evident that Rediff lacks a clear growth strategy. And though the going has been not all that bad so far, there is no guarantee that the story will continue to be the same in times to come. If strong niche players usurp one or more of its perceived dominance, Rediff will be in for some serious trouble. Especially in the online classifieds area, there have been a lot of investment in verticals portals by venture firms (Online Travel, Matrimonials, Jobs, etc.).

Perhaps this is the backdrop for its acquisition discussions.

Disclosure: Author has no position in stocks mentioned

Comments

[Andrew Hor...:]

Nice work in looking deep into this one. I am also looking at the acquisition potential as it is looking as if there is some chatter. Would like to see YHOO take a shot as it needs to do something and this would create an acreetive transaction within short time and help to increase Yahoo's brand.

www.thedisciplinedinve.../

2007 Jul 17 11:52 AM

[Nidhi Kadalbal:]

Take over is a possibility, but what are the chances if P/E for REDF is around 93? Particularly when organic growth for Yahoo and google is not bad in India. And YHOO is posting drop in profits in Q2 ..


creating-wealth.blogsp...

2007 Jul 17 05:18 PM

[Nidhi Kadalbal:]

Unless YHOO sees this acquisition as a way to compensate for its slowing growth ...

2007 Jul 17 05:20 PM