What’s going on with Rediff?
Background: Rediff.com India Limited (Nasdaq: REDF) is India’s leading online portal. Rediff has had a rough time since reaching its all time high of 33.75 in February 2006. Jim Cramer recommending Rediff on his Mad Money show was the primary reason the stock made it into the 30’s. The stock moved up so quick from high teens to low 30’s that Cramer called on his loyal followers to pull the trigger and sell the stock. Rediff was seen as the perfect example of how Cramer can affect the markets with his picks. He called on Rediff as India’s Google which is totally wrong as you will find out later in this article. Anyways, the stock has been declining ever since although the tough market here and in India played a contributing factor. The stock is currently trading at $13.62 with a market cap of about $367 million.
The company basically has two business units:
- India Online - Rediff.com Portal - Revenues for quarter ending March 31st - US$3.57 million
- US publishing - It publishes a newspaper for the Indian community in the United States which has also helped it become the portal of choice for Non-Resident Indians (NRI’s) living abroad - Revenues for quarter ending March 31st - US$1.54 million.
Rediff is considered a good way to play the Indian Internet growth and is profitable as well but calling it the Google of India is disrespecting Google.
So should you buy Rediff?
I don’t consider Rediff as a long term holding. It’s a good stock for traders and with the growth in Indian internet users to surpass 100 million in the next couple of years Rediff should be a huge beneficiary. The company should grow by default.
Here’s what I think:
1. Rediff.com doesn’t offer anything unique to Indian internet users that Sify, Yahoo! India, MSN India and IndiaTimes.com doesn’t offer.
2. If you ask most Indian Internet users they would rather use email service provided by Google or Yahoo over Rediff as well as Sify.
3. Most Indian internet users are English speaking and are more likely to use Yahoo and Google for search and email.
4. Has Rediff been innovative as of late? What is their near term and long term strategy?
Here are some things to look at:
- Rediff unlike its direct Indian competitors Sify.com and IndiaTimes.com doesn’t have a broadband portal. Sify has taken a lead in this with SifyMax.
- Sify, a competitor, recently launched localized portals for a couple of Indian cities (Bangalorelive.in and MumbaiLive.in), with more on the way. Is Rediff doing anything about this? Since, Indian portals can’t compete with Yahoo, Google and MSN on services they have to invest in content and Sify is doing that with its broadband portal and localized city specific portals. What is Rediff’s strategy here?
- Sify recently bought a US based travel portal to take advantage of the booming travel sector. MSN India also formed a partnership with a travel portal. Rediff does have a travel search tool but no official relationship with a travel portal that I know about.
5. The good thing is that the company does have cash and cash equivalents totaling approximately US$53 million as of March 31, 2006. This is enough cash to make strategic acquisitions and to invest in new products and services. The company needs to focus on content and utilize its strong name brand.
Conclusion: You can’t go wrong with Rediff as a trader. The company should benefit from the sheer number of internet users that are expected to surpass 100 million in the next couple of years. I am just not sold on the company long term. It’s hard to keep internet users who mainly come to your site for content without investing in content.
June 27th, 2006 at 7:12 am
totally agree on the fundamental analysis. rediff can be rated as junk status if it was a bond. the content is totally useless. ibnlive.com provides excellent news coverage
June 27th, 2006 at 6:29 pm
Agree that valuation of Rediff is stretched. A company with revenue of 3.57 million cannot realistically have a market cap of 357 million!. But the key point that you and most other western analysts miss is the importance of local content. Have you ever looked at Yahoo India or Google to search or read news for local information? Yahoo and Google may be global brands, but Indians - however English educated they are - would rarely use them for information about their specific local towns. So I believe rediff will always have it niche advantage. What they really should focus on is how they can generate revenue. Traffic at their site will always be high - so no problem there. They should probably focus on online product sales more. Buying from Internet is very much new to average Indian. Perhaps they could have a tie-up with major Retail shops and become an Indian Online retail powerhouse!
June 28th, 2006 at 10:41 am
That is exactly what I am saying UKN. That they need to invest in local content. I also mentioned that they will grow by default due to the huge growth in Indian internet users. The reason I used Sify as an example is b/c they are investing in local content and opening city specific portals as well as broandband site with a lot of content (SifyMax). I am not sure what Rediff’s future portal strategy is?