The disappointing performance comes on the back of a fall in revenue and a return to losses in the year till March (fiscal 2009). Revenue had fallen by 21% to $25.4 million in the last fiscal year, because of which the firm reported an operating loss of $1.46 million. In fiscal 2008, the firm had reported an operating profit of $4.39 million. In fact, Rediff had an impressive run in the three-year period between fiscal 2006 and fiscal 2008, when revenue had grown at a compounded average of 37%. The firm even reported a net profit (adjusted for one-offs) in each of these years, at a healthy cumulative net profit margin of 16.5%, giving rise to investor hopes in the firm.

Graphics: Yogesh Kumar / Mint

The pertinent question is: Why hasn’t Rediff benefited from the turnaround in the economy since early this year? After all, other media businesses have benefited from the return of advertising spending. Rediff’s performance has been affected because of its decision late in the June quarter to remove all advertisements from its home page. While this has affected revenue in the short term, the firm expects that the uncluttered home page will result in an improvement in customer experience and, hence, an increase in the number of unique users on its website.

Simultaneously, Rediff has increased spending on product development and brand building and is currently spending between $1 million and $1.5 million on these activities to spur user growth. The firm has quoted ComScore Media Metrix data in its press release to state that these measures have started to show results and have helped it restore the growth in its user base. Besides, cash burn isn’t very high, after accounting for the quarterly interest income of around $1.1 million earned by the firm. The fact that the firm has $48 million in cash and cash equivalents is also a comforting factor.

The Rediff stock, listed on the US’ Nasdaq stock exchange, was around the $25 level in mid-2007, around the time its financial performance peaked. But since then, the stock has been on a downward spiral and now trades at $3.17, almost mimicking the fall in profitability. But even at current prices, the firm gets a valuation of around five times trailing 12-month revenue. Investors’ hopes from Rediff continue to be high despite its patchy history.

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