Internet Sector Q2 Results Preview: Modest growth likely with slow margin expansion for Zomato, PB Fintech: JM Financial
Q2FY24 results expected to be quiet for internet companies, with sequential increase in majority of companies. Profitability still the focus in internet sector, stocks expected to react to leading indicators for Q3FY24.
Brokerage house, JM Financial, said that Q2FY24 (July-September) is typically a quiet quarter for the majority of the internet companies, and that is what it anticipates from the results.The majority of companies would see sequential increase, and Nykaa's year-over-year (YoY) growth would be slightly impacted by the festive season.
Operational leverage as a result would ensure margin expansion as well, but at a slower rate than in previous quarters, especially for Zomato and PB Fintech.
Additionally,thebrokeragestatedinitsQ2FY24previewreportontheInternetsectorthat,ashasbeenthecaserecently,profitabilityisstillthebuzzwordinboththelistedandprivatesectors.
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Brokerage's coverage companies are now actively guiding towards profit after tax (PAT) level profitability, having previously just achieved operating profitability.
The brokerage said that it might need a different perspective to evaluate CarTrade considering OLX acquisition with the company expected to consolidate numbers from second week of August.
Transacting user addition and ordering frequency will remain the primary metrics to be tracked. Although there is limited near-term upside for certain stocks that have recently displayed strong exuberance, the story of longer-term growth and margin expansion remains valid.
"However, we expect stocks to react more to leading indicators for Q3FY24 considering the festive season and world cup combo would result in strong seasonality for companies such as Zomato, Nykaa, CarTrade, Delhivery, EaseMyTrip and Affle," said the brokerage in its report.
Let's look at the brokerage's Q2FY24 expectations from the companies under its coverage.
Affle
In 2QFY24, the brokerage anticipates another quarter of mutedorganic revenue growth for Affle.Due to ongoing macro challenges for the ad-tech business, it actually only shows mid-single digit year-over-year (YoY) improvement.
"Including the recently acquired Youappi business, we forecast consolidated revenue growth of 25% YoY. While gross margins can expand 120bps YoY due to continued improvement in Jampp margins and focus on high-quality volumes, EBIT margin could see 30 basis points YoY dip due to lower operating margins in Youappi business as well as negative operating leverage in the organic business," the brokerage said.
CarTrade
With new car sales continuing to be strong, the brokerage projects that CarTrade's standalone business will expand by c.9% sequentially and c.26% year over year. However, with a 7.5% YoY revenue decline, the B2B remarketing industry is not expected to rebound just soon.
“Overall, CarTrade should deliver 6.5% YoY revenue growth in Q2FY24 led by advertising revenues with adj. EBITDA margin (excluding ESOP expense) of 19.3%, rise of 754bps QoQ, due to controlled marketing expenses and employee cost demonstrating operating leverage. We expect the company to deliver revenue/adj. EBITDA of 19.1%/35.6% over FY23-28E with sustained growth in auto industry and shift to digital channels driving operating leverage,” the brokerage said in its report.
Delhivery
The brokerage expects a 6% sequential volume increase in Delhivery's express parcel company, led by the rise in e-commerce. However, YoY business will have a base effect as a result of the sale season falling entirely in Q3 of this year. The category mix and the construction of regional warehouses by Delhivery's e-commerce partners, which reduces the shipments' distance, would nevertheless cause the realisation per shipment to remain lower.
EaseMyTrip
“We expect gross booking revenues (GBR) in 2Q to grow 35% YoY (+13% YoY), aided by continued travel tailwinds, expansion of retail business and non-air segments, and the recently announced M&As. Revenue is expected to grow 33% YoY (+17% QoQ), broadly in-line GBR growth due to flattish net take-rates. We forecast EBITDA margin contraction by 175bps YoY due to increase in employee costs and other G&A expenses (as % of revenue). Accordingly, we forecast 26%/21% YoY growth in EBITDA and PAT,” said the brokerage.
IndiaMart
Amidst recent price rises and a large base of last year's subscriber additions, the brokerage projects only roughly 4.5k sequential paid subscription additions in 2QFY24, compared to management forecast of 5–6k. It is anticipated that YoY cash collections will increase at a robust pace of 22.5% in light of recent pricing increases and subscription upsells. As a result of both a rise in ARPU and robust volume, revenue growth trend is expected to continue at roughly 25% YoY.
Info Edge
“We forecast standalone business billings’ to remain flattish YoY (+3% QoQ) as billings weakness in recruitment (-5% YoY) due to continued hiring challenges in IT and slowing growth trends in non IT, would likely be offset by 99acres (+13% YoY), Jeevansathi (+15% YoY) and Shiksha (+20% YoY). Despite expectations of muted billings, we see standalone revenue growing about 10% YoY, on the back of strong built-up of deferred sales in the previous quarters,” said the brokerage.
Just Dial
The brokerage forecast revenue growth in the second quarter of 23.6% YoY (+2.7% QoQ), driven by a c.11% YoY increase in average realisations and paid campaigns (period-end). It expects that EBITDA margin will increase by 760bps YoY due to increased sales team efficiency, restrained A&P spending, and a reduction in expenditures made in new projects.
Nykaa
"We expect overall GMV to grow by 23% YoY (8.2% QoQ), led by BPC at 18.9%/4.7% YoY/QoQ, Fashion at 27.9%/17.2% YoY/QoQ and Others at 56.1%/11.4% YoY/QoQ. We anticipate revenue to grow at 22.2%/5.8% YoY/QoQ.
We expect EBITDA margins to improve by 44bps QoQ led by the benefit coming from regional warehouses lowering fulfilment costs, optimisation of marketing costs and optimisation of category mix in Fashion," the brokerage said.
PB Fintech
The brokerage expects that PB Fintech's second quarter of FY24 will be uneventful and full of few surprises. It predicts that PB Fintech will generate 29%/32% YoY growth in loan disbursals and insurance premiums, with corresponding revenue growth of 25%/35% YoY due to improving credit disbursals and declining insurance take-rates. The brokerage business anticipates a 34.4% group contribution margin.
Route Mobile
"We forecast 22% YoY revenue growth for Route Mobile aided by increase in ILD/NLD pricing, expansion of partnership with Amazon in newer geographies and recent firewall deal wins (mainly Sri Lanka). EBITDA margin could improve c.10bps YoY to 12.0% due to strong operating leverage," the brokerage said.
Zomato
The brokerage forecast 4% (+15% YoY) sequential gross order value (GOV) growth in the food delivery market despite heightened competition. Because of the recent improvement in take-rates, reported revenue growth would be comparatively larger than GOV growth.
“In BlinkIt, we expect very strong sequential GOV growth of 17% led by robust increase in order volume (that in turn would be driven by MTU increase). At a consolidated level, we see Zomato’s reported EBITDA loss narrowing down to ₹60mn in 2Q versus a loss of ₹480mn in 1Q,” said the brokerage.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Business NewsIndustryInternet Sector Q2 Results Preview: Modest growth likely with slow margin expansion for Zomato, PB Fintech: JM Financial
First Published:12 Oct 2023, 01:32 PM IST
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