Why Info Edge Share Price is Falling

Editor's note: As the global recession concerns and high attrition rates continue to impact the IT sector in India, one of the leading players in the market, Info Edge, has been hit hard with a significant fall in its share price.

Despite being considered one of the best tech stocks in the country, the company's share value has been on a consistent downward trend, thanks to weak quarterly results.

Last year in November 2022, we explored the reasons behind the fall in Info Edge's share price and analysed what it could mean for the company's future prospects.

The company's shares are experiencing a similar downtrend at present.

Continue reading to know what other uncertainties and opportunities lie ahead for the company.

Reasons why Info Edge share price is falling

Earlier this week, I was reading a book.

It was about two best friends going on a trek. The plot gets interesting when the trekking troop decides to not climb a cliff because it was too risky. But boys being boys, the two guys decided to climb the cliff on their own.

Both of them helped each other way too much and finally with trust, effort, and courage, they both climbed the cliff and laughed their hearts out.

But a story isn't a story unless it has some twist right? It turns out that one friend helped the other friend to climb, only to push him down.

It was a heart-breaking ending. The hero died at the hands of the same person who helped him live the best of his life.

This hero's fate was quite similar to the share price of Info Edge.

Early in 2020, Info Edge's share price tasted success and started rallying. It did not look back until it reached an all-time high of Rs 7,017 on 18 October 2021 from the lows of Rs 1,600 during the corona crash.

However, the trend reversed for Info Edge in 2022 as other IT stocks started crumbling. Though the fall was not to a large extent as other IT stocks.

But what caused the rally and what caused the fall?

Poor quarterly results

Quarterly results are one of the main reasons for the share price movements nowadays.

Any earnings disappointment would mean the stock getting hammered. The margin for error in expensive stocks like Info Edge is wafer thin.

For the quarter that ended 30 September 2022, Info Edge's net sales totalled Rs 6,041 m. This is 10% higher on a sequential basis and 65% higher on a YoY basis.

However, the trend changes when we look at the profit figures. The gross profit for the said period was 10% higher on a sequential basis but is 99% lower compared to a year ago period.

The net profit of the company stood at Rs 1,492 m. This is 58% lower on a sequential basis and 98% lower on a YoY basis.

To know more, check out the company's latest quarterly results.

The drastic fall in profits has hurt investor sentiment.

Update: On 13 February 2023, shares of Info Edge tanked more than 10% after the company reported losses in the December quarter owing to recognition of impairment charge of Rs 2.8 billion (bn) on investment in 4B Networks Pvt. Ltd. This was due to uncertainty in the funding environment.

The company said it does not expect to realize further impairment charges on other investments.

Within just months, the additional investment in 4B Network was written off.

Adding to this was the slowdown in hiring in the IT sector. The sector forms a significant chunk of recruitment vertical, which primarily comprises Naukri, which is Info Edge's flagship platform.

Among other unlisted companies, Info Edge also has a 14% stake in Zomato and a 13% stake in PB Fintech.

What Drove Info Edge's Profits in 2021?

A year ago, Info Edge was enjoying tailwinds. The great resignation phase was big trouble for the best IT stocks in India but for Info Edge, it was a blessing in disguise.

As more and more people left jobs, they searched for other jobs. In India one of the most popular names for searching jobs is Naukri.com. Naukri is quite literally the hen that gives golden eggs to Info Edge.

During the great resignation phase, the billing volumes were surging high because of an increase in recruitment solution billing. Hence, in September 2021, the company was rolling in cash despite the losses from the real estate sector.

A year ago Info Edge also booked an exceptional gain of Rs 82.7 bn as it sold a part of its holdings in Zomato's initial public offer (IPO).

Hence, comparing year on year figures of the company would not give a clear picture.

What Dragged the Profits in 2022?

The recruitment segment of Info Edge saw its billings grow 41% year-on-year to Rs 4.3 bn in the September quarter, as IT companies have slowed down hiring due to fears of an economic slowdown.

However, the profits from the recruitment sector were dragged down by the losses of real estate and other businesses.

The company's educational sector performance (Siksha) was above expectations. It saw an increase of 37% in its revenue on a revenue basis.

The net losses from the real estate had widened in the quarter under review. The loss from other businesses has multiplied 6 times compared to a year ago period.

Also, the recruitment sector saw an increase but the growth rate of increase was impacted by the slowdown of the attrition rate of IT companies.

Recruitment is the cash cow of the company hence a slow growth rate of this arm hurt investor sentiment.

Increasing employee costs and advertisement costs had been the last nail in the coffin of Info Edge's growing profits.

What other reasons are responsible for the downfall of Info Edge's share price?

Apart from loss-making businesses, Info Edge also has loss-making investments.

When initially Info Edge invested in Zomato and Policy Bazaar, the company's share price saw a sharp increase because of public belief in the success of the new-age IT stocks.

However, as time progressed both these companies have been taken to the cleaners. After the initial gains on listing the companies have barely seen an upward movement on the bourses. The reputation of both of these companies has indirectly shaken investors' beliefs even on Info Edge.

The share price erosion of Zomato and Policy Bazaar has dragged down the investment value of Info Edge.

What next?

The company's matrimonial, real estate, and education platforms have been continuously reporting losses. Info Edge is working on making improvements to the platforms to beat the competition but the competition is too strong in all the sectors.

In matrimony, Info Edge is experimenting with tweaks such as freeing up certain services and focusing on future monetisation rather than trying to generate cash up-front. This suggests further pressure in the margin of matrimony business.

In the real estate sector, the company saw billings go up 173% YoY off a low base. The company has made new investments of around Rs 900 m in Broker Network in Q2.

It has also invested Rs 750 m in the ed-tech platform Adda 247 which delivers educational services and assistance to students preparing for government examinations.

The slowdown in IT hiring poses a sign of great concern for the company given a major contribution to the total revenue. However, IT companies have still maintained a decent growth rate and also hiring from other sectors like travel, hospitality, education, and retail has been on the rise.

Thus, the company faces strong headwinds, but it is trying its best to overcome the hurdles.

About the company

Info Edge is an Indian pure-play internet company based in Noida, Uttar Pradesh.

The company runs an online job portal Naukri.com, a matrimony website Jeevansathi.com, a real estate classifieds platform 99Acres.com, a workplace discover platform AmbitionBox.com and an educational website Shiksha.com.

As of September 2020, it also holds minority stakes in 23 online companies including two former unicorns-the food delivery company Zomato and the insurance aggregator Policy bazaar.

To know more about the company check out its factsheet.

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