Watchlist for Big Data, AI and ML Gold Rush 

Dear Viewers

Have you ever wondered how advertising technology has grown leaps and bounds, in the recent years.

For instance, I was randomly looking for some stay options for a break at a hill station.

While their trip has been cancelled, there are still popups and random advertisements that keep appearing whenever I'm on my mobile.

Well I'm sure you too have had moments when you wondered how your mobile knows everything that you need or are thinking about.

It's like a genie ready to pop up, to cater to what whatever we are aspiring or wishing for. Be it your midnight food cravings or some workshop you have been intending to attend, there is a way to everything through a pop up and a click.

This may seem too random. But there is a lot of intentional work in place. There are businesses collecting billions of data points and making sense of it using AI and ML for companies to grow business and for users to consume more.

Like it or not, the Big data is here. So is AI. Combine the two. And what you are likely looking at looking at is a business model with network effects, scalability and market opportunity.

Today, I'm going to talk of two such businesses.

The first is Affle India Ltd. It's a global tech firm for mobile advertising.

The company has an inhouse data management platform (DMP) with reach to over 3 bn devices. Huge access to data, along with artificial intelligence and machine learning (AI and ML) capabilities drives its real time predictive algorithm.

Through Affle, the advertisers or company's clients are able to show high impact and contextual advertisements at different touch points of a consumer's journey on the mobile phone and other digital devices, right from its purchase to the time it is discarded. Besides, the company also offers a fraud detection platform to help maximise the return on investment (RoI) for its clients.

The company enjoys patents across the world.

Over 90% of Affle's revenue comes from fast growing verticals like education tech, fintech, foodtech, gaming, hospitality and travel , healthtech and so on.

It's worth emphasising here that 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 makes money every time a user converts. This revenue model is called CPCU or cost per converted user.

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.

This ensures high ROI or return on investment for advertisers. Focus on higher conversions makes it a win -win model for the company/ and its clients.

The higher the conversions, higher the revenues for Affle India...and higher the returns for advertisers.

Then there is this element of network effects.

When advertisers get good returns or response from customers, the company attracts higher marketing budgets, which allows it access to more data and to grow its data assets. This leads to higher prediction accuracy and better results for recommendation algorithm, allowing it to show more personalised and better targeted ads. This increases the conversion rate and generates high returns for advertisers and revenues for the company, with access to higher marketing budgets, And the virtual cycle goes on to compound into huge networking effect.

90% of the company's revenue are based on CPCU.

The remaining comes from app development business for enterprises, data analytics, and other from offering brand visibility, online to offline commerce etc.

Second differentiating factor for Affle as compared to other tech firms is focus on emerging markets. Almost 90% of company's revenues come from emerging market such as South East Asia, Middle East Africa, and Latin America etc. Unlike US/UK and other mature markets, where smartphone penetration is 80%, emerging markets offer a huge growth potential with smartphone penetration at 32% in India, 51% in Brazil and 59% in Indonesia

With growing use of connected devices, which go beyond smartphones, and rapid digitization of existing and new industry verticals, the runway for the company remains long. By the end of the decade, the company aims to reach 10 bn devices from 3 bn devices at present.

The company has shown good growth in the long term and healthy return ratios along with strong balance sheet. Its stock trades at a PE of 55 times.

The second is Rategain Travel Technologies Ltd.

The company is the largest SAAS (software as a service) player in travel and hospitality segment in India.

It helps the clients like hotels, airlines, online travel aggregators like Expedia to acquire guests, service them and drive engagement with them to command better wallet share through its AI powered tech platform.

It helps the end clients with operational and management aspects, along with analysing travel-based data in a way that helps its clients increase engagement with the customers along with wallet share. For example, if clients have certain preferences, the company might make use of this data to help hotels service them better and drive engagement and wallet share.

The company has three divisions:

First is Data as a Service, around 29% of the revenue. through which it provides real time insights into demand supply and pricing trends in the industry. This helps its clients such as hotels, airlines, OTAs to price their room inventory accordingly. The revenues in this segment are based subscription, where clients pay a fee to access the service, and hybrid model, where minimum subscription fees is followed by pay per use charge.

The second is distribution, 34% of the revenue. Under distribution segment, it ensures seamless connectivity between hotels and their demand partners, for example, let's say online travel aggregators like Expedia and with global distributors. This requires efficient real time communication about inventory availability, updating gallery, guest reviews, processing bookings, pricing and in a standardized and appealing format. The revenues in this segment come from subscription and transactions, where the company generates revenue whenever a guest makes a booking.

The third is Martech, basically marketing tech, accounting for highest share in revenues of 37.

Here, the company offers AI and digital marketing tools and services to help hotels improve brand presence on social media, and also helps optimize direct bookings besides monitoring engagement. Since the company already has a lot of data based on travel intent, the company uses it to drive business for clients, and offers performance-based marketing. The revenues are based on subscriptions here.

Of the three, Martech is the fastest growing vertical.

But overall, with subscription revenue at 75%, there is a high visibility in the business. The company enjoys high revenue retention rates of over 90%.

The business is going in the right direction as the lifetime value to customer acquisition cost has been inching up and is at 21.3 at present.

LTV or lifetime value is arrived at by multiplying Gross Margin from New Sales with expected lifetime of the contracts.

CAC or customer acquisition cost is arrived at by dividing sales and marketing costs by no of customers added.

The company has grown its revenue by 54% in FY23, while operating profit was up 164%.

For FY24, the management has shared a guidance of 55% to 58% growth with PAT margin at ~12%. The return ratios are around 10%. The risk is downcycle in travel industry or cut down in marketing budgets... or its outsourcing. So far, the company has enjoyed 90% gross revenue retention rate and 75% business is based on SAAS model. The balance sheet is debt free. The stock is trading at 62 times PE.

So these were the two stocks riding high on click economy and Bigdata and AI revolution,

Please do not take today's discussion as a view on any of the stocks. The video is for educational purpose only.

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Thank you for watching. Goodbye and have a good day.