Affle (India) Ltd
NSE:AFFLE
Earnings Call Analysis
Q3-2024 Analysis
Affle (India) Ltd
The company has demonstrated a keen focus on managing working capital, seeing no material changes in collection risks and investing INR 37.3 crores to acquire a 9.03% stake in a social media app focused on travel. This move aligns with the company's strategy to deepen their engagement in the travel vertical, indicating both a solid financial position and a clear vision for growth through strategic acquisition.
In the outlook, the management exuded confidence in the company's long-term business prospects and committed to further investments aimed at delivering sustainable growth. This forward-looking stance suggests a belief in the company's enduring value proposition and an ongoing determination to capitalize on market opportunities.
Management expressed strong optimism regarding growth in developed markets, which have bounced back after a period of decline due to internal challenges. The assertive action plans executed to address these issues have led to deserved growth, with a sizeable market still to address and a positive year-on-year outlook for 2024 thanks to the launches of differentiated products.
The company acknowledged sequential weaknesses in the Indian market, attributing it to the regulatory changes impacting real money gaming (RMG). However, they anticipate a recovery and are shifting towards a strategy to engage more premium users, which might lead to healthier unit economics and higher profitability. Strategies are in place to offset the RMG impact and leverage eventual market recovery in advertising budgets.
Costs have risen, notably due to marketing expenses aimed at growing the developed markets. These expenses are planned to continue into the next quarter and year, reflecting the company's investment in sales and marketing to strengthen their market position in what seems to be calculated, growth-focused decisions rather than cost escalations without return.
The company remains committed to aggressive growth and reiterated its intention not to adopt a defensive posture. They plan to continue investing in product development and ecosystem partnerships to maintain and enhance their strong market position, particularly in emerging markets which account for a significant portion of their business. This strategy prioritizes long-term growth over short-term cost optimization.
International markets are performing well, with emerging markets contributing significantly to the company's revenue stream. The optimistic turnaround in developed markets is expected to sustain growth in the coming quarters, while Latin American, Asia Pacific emerging markets, and Africa provide additional strongholds for the company.
Despite strong revenue growth, margin expansion was not realized in Q3 due to transformative investments, particularly in developing markets. These investments reflect the company's strategic choice to back growth expectations with financial commitments. The management's stance on the margin trajectory emphasizes the need to continue investing for growth rather than prioritizing short-term margin benefits.
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Ladies and gentlemen, good day, and welcome to Affle (India) Q3 and 9 Months FY 2024 Earnings Conference Call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is recorded. I now hand the conference over to Mr. Anmol Garg from DAM Capital Advisors. Thank you, and over to you, sir.
Thank you, Nirav. Good morning, everyone. On behalf of DAM Capital, we welcome you all to your 9-month FY '24 Conference Call of Affle (India) Limited. I take this opportunity to welcome the management of Affle (India) Limited, represented by Mr. Anuj Khanna Sohum, who is MD and CEO of the company; and Mr. Kapil Butani, who is the CFO of the company. Before we begin the discussion, I would like to remind you that some of the statements made in today's conference call may be forward-looking in nature and may involve some risks uncertainties. Kindly refer to Slide 23 of the company's Q3 earnings presentation for a detailed disclaimer. I'll now hand over the call to Mr. Anuj Khanna Sohum for his opening remarks. Thank you, and over to you, Anuj.
Good morning, everyone, and thank you for joining the call today. I trust all of you are keeping in good health. We are glad to confirm that we have achieved a decisive and timely turnaround in developed markets, anchored on our determined execution with increased investments in sales and marketing and our hands-on entrepreneur leadership. Post-COVID, this was our first significant challenge and we were transparent with our stakeholders about our action plans since the start of this financial year, and we delivered on our commitment to complete the turnaround in calendar year 2023 itself. We entered 2020 with our strategic more fortified, stronger than ever before. Our 15 Gen AI patent filings have strengthened our intellectual capital and the INR 7.5 billion cash capital has strengthened our financial balance sheet. We consciously invested in new product use cases and ecosystem-level partnerships to unlock premium inventories and touch points on including CTV, Apple Scan, iOS App Store and other OEM App Stores, both in India and international markets. This was the first significant step towards our long-term strategic direction, as the premium converted users enable higher lifetime value for advertisers and thus unlock the sustainable premium pricing bid for the most profitable ad campaigns across both emerging and developed markets. Speaking of Q3 FY 2024, we achieved our highest-ever quarterly revenue, highest EBITDA, PATs, conversions and CPCU rate will a little bit. In Q3 FY 2024, we delivered revenue growth of 32.6% year-on-year and 15.6% quarter-on-quarter. We continued to enhance our consumer-centric platform offerings, progressively delivering stronger than ever quarterly EBITDA of INR 967 million and PAT of INR 768 million. Our CPCU business delivered about 84 million conversions during the quarter at the CPCU rate of INR 57. That helped us achieve CPCU revenue of INR 4.76 billion, an increase of 38.2% year-on-year and 19.2% quarter-on-quarter. We continued to witness a robust market opportunity as advertisers steadily accelerate their digital spending, resulting in broad-based growth in our CPCU business in global emerging markets. In terms of the 9-month FY 2024, we achieved revenue growth of 24% year-on-year and PAT growth of 14.7% year-on-year. Overall, for 9 months, our CPCU revenue increased by 25.9% year-on-year and has grown at CAGR of about 60% in the last 4 year period. Our strong anchoring across India and global emerging markets continues to be resilient, and it contributed over 74% of our quarterly revenues this time. Our growth for India and emerging markets combined was about 24% year-on-year, which was majorly all organic and about 16% on a quarter-on-quarter basis. While global emerging markets clearly performed exceptionally well and grew about 41% year-on-year, there was a significant pullback effect of real money gaming within the gaming vertical in India. And if not for this impact, India would have achieved much greater sequential growth from Q2, Q3 in FY 2024 itself, just like we did in FY 2023. Our broad-based growth across diversified verticals continues to give us the confidence that the broad market tailwinds in India across most of our verticals and global emerging markets across all our verticals is intact. Speaking of developed markets. We have significantly strengthened our foundation for the developed markets with our integrated consumer platform propositions, greater investments in sales and marketing and the confidence in our teams to convincingly win from here onwards. Despite the U.S. fintech vertical continuing as a major even in this year, our growth in developed markets, together with YouAppi was 67% year-on-year and about 14% quarter-on-quarter. With this robust foundation rebuild, we are confident of capitalizing on the improved macro market outlook and our outlook for FY 2025 is optimistic. While most of the other industry players are adopting Gen AI to optimize human capital and costs, Affle is investing in Gen AI-powered innovations to go much beyond cost efficiencies to enable long-term revenue and competitive advantages. We filed 15 new patents in India during Q3. These patents power futuristic use cases of interaction, training, integration of Gen AI agents and cover advanced AI areas, including personalization and recommendation, predictive analysis, privacy, enhanced fraud detection and so on. As discussed over the previous earnings call, in Q3, we launched our first Gen AI-powered product, which is a multilingual keyword recommendation engine, as a premium platform to drive conversions. In addition to this, we were recently granted a new U.S. patent related to digital ad fraud and thus, our total patents portfolio today includes 35 patents filed or granted. Continuing to share our customer success stories this time, we have also included 3 case studies, which are focused on travel vertical, food tech and e-commerce conversions for a global MCG company. Our Affle 2.0 consumer from STACK continues to be recognized in the industry as a top performer and we recently won top rankings and awards across various industry forums and indexes. Example, in the 16th edition of App Supplier Performance Index, our platforms were ranked among top 10 global gaming platforms and featured amongst the global top 10 non-gaming category as well. We also achieved the #1 non-SR app discovery platform ranked in India. In the singular CAD network rankings, we were the top DSP on scan 4.0 Furthermore, we won the most outstanding programmatic platform of the Year award at the Ad Galimov Awards 2023. Lastly, we also won the outstanding Partner Award at the OPO Developer Conference. With that, I now hand over the discussion to our CFO, Kapil Bhutani, to discuss the financials. Thank you. Over to you, Kapil.
Thank you, Anuj. Thank you, everybody, for joining in wishing everyone a good day and hope you are keeping safe and well. This is for the first time we are meeting in 2024, wishing you happy new year also. Continuing our growth momentum, we concluded quarter 3 -- for financial year '24 on a strong note and delivered revenue from operations of INR 4,987 million, that is INR 498.7 crores, a growth of 32.6% Y-o-Y. During the quarter, India contributed 26.5%, while India -- international market contributed 73.5% to our revenues. Sequentially, quarter 3 revenues increased by 15.6% on quarter-on-quarter, led by broad-based growth in our CPCU business with robust business momentum across global emerging markets and successful turnaround in the developed markets. Our 9 months revenue stood at INR 13.366 million, that is INR 133.66 crores, a robust growth of 24% Y-o-Y. In terms of OpEx, our inventory and data cost stood at 61.6% of our revenues for operation in this quarter time, which was higher about 118 basis point on the sequential basis. As also highlighted by Anuj, we are calibrating our platform on to premium inventory touch points and deeper ecosystem level partnerships. Our other expenses stood at 6.6% of the revenue and increased by INR 75 million, that is INR 7.5 crores on a quarter-on-quarter basis, mainly on account of higher sales and marketing costs to support the developed market growth during the festive season. We see this as a short-term investment phase with combined back of increase in our inventory and data costs and other expenses, underpinning our strategic position and business growth globally.
Our employee benefit for the quarter increased sequentially by 7.4% due to results in few geographies. We achieved highest ever quarterly EBITDA in quarter 3 which stood at INR 967 million, that is INR 96.7 crores, an increase of 20.3% Y-o-Y. In 9 months of financial year 2024, our EBITDA increased by 18.4% Y-o-Y, while EBITDA margin stood at 19.6%. Our profit after tax for the quarter stood at INR 768 million, that is INR 76.8 crores, an increase of 11.4% Y-o-Y and 15% quarter-on-quarter. We remain focused on our working capital management as there was no material change in our collection risk. In quarter 3, we made investment of these 372.9 million, that is INR 37.3 crores and acquired 9.03% stake in Private Limited on a fully diluted basis. over the indigenous social media app for people who like to travel and explore new places, it's a strategic investment for us that complements our verticalization strategy to go deeper into travel vertical.
Looking ahead, we remain confident of long-term business prospects to invest further in our business and stand committed to deliver long-term sustainable growth. With this, I end our presentation. Let's please open the floor for questions.
[Operator Instructions] The first question is from the line of Anmol Garg DAM Capital Advisors.
So I had a couple of questions. Firstly, we have seen a strong recovery in the international business led by developed markets and emerging, so now I understand that some of it is because of seasonality, but even excluding the seasonality, can we expect the strong growth momentum to continue in the developed markets?
Sure I take that question first. So would you like to ask all your questions together.
No, you can answer that. And I'll ask my next question after that.
All right. Well, I think the developed markets, what you're seeing the growth that has come, it's a growth that has been long waited. I mean it should have, first of all, the fact that in the very markets we were degrowing for several quarters was a deeply internal issue that we were dealing with, and we were sorting it out. And we knew we would sort it out with it because we had a clear action plan. So we have to see the growth in context. This is the growth that we deserved, which belong to us, was awaiting us because of certain issues, we fixed those issues decisively and won it back. Now that we have won it back, I mean, it's still -- I would say our base is still small. The addressable market is huge. Our belief confidence in our differentiated offerings and our commitment to deliver growth is there. The opportunity is there for us to take. So I am very optimistic that we will continue this trend because there is a renewed commitment because on the ground, the team has greater sell believe. But look, we -- it's not easy to turn around, especially when you are fixing the team and you are going out there. I think we have done something fantastic in solving what we did in 2023, and really very happy with where we are, and we are stronger than ever before. So our optimism on continuing developed markets growth trajectory is positive, especially on year-on-year basis because the last few quarters were so muted, right, for us. So I mean the bad news of 2023, the subdued quarters of developed markets will appear as better performance in 2024 because as we build up from here, we will start seeing much bigger year-on-year positive trends for developed markets. So -- but I'm not comparing it only year-on-year because that's the easier battle for us on developed markets going forward. But sequentially, fundamentally, winning what we deserve in the market because we have great products and we have a differentiated model. So I'm really quite optimistic on that.
And just on the India business as well, we have seen some sequential weakness over there. Now you indicated that it is because of RMG to some effect. What I wanted to understand is that is now RMG coming to the base and we will see good growth from here on?
So RMG impacted us basically last 2 quarters, okay, Q2 and Q3. Q2 was impacting us about midway through the quarter because of certain regulatory changes, which impacted the fundamentals of the RMG category or what kind of ROI measurement these people do. So I think there is a clear impact. And I think last quarter, we quantified it. This quarter, the impact was bigger. Why? Because you typically expect bigger budgets coming from there and they were holding back and the impact was for the whole quarter versus half the quarter. So I think if I were to eliminate RMG as, let's say, the impact or if I were to look at what would RMG be on a comparable basis like it did in Q2 to Q3 festive season impact, we would have seen India growing comfortably around 20% plus, 20% to 25% year-on-year basis. And sequentially, we would have grown much better like we have always done from Q2 to Q3. So this quarter, the only vertical that I would isolate the impact to is the gaming vertical, primarily linked to RMG and the GST impact. And we are hoping that in 2024, this will taper off slowly. And one of the ways to cover that is to go more premium. So just think of it this way, business fundamentals, each of these advertisers needs to make money. They need to be profitable. The only way to be profitable is if they get users and converted users, which are going to deliver high lifetime value for them. If we give them premium users, they will have the ability to pay us and we'll be having the ability to price well enough to make 20% to 25% EBITDA. So therefore, especially in markets like India, where unit economics is harsh, the strategy of Affle to go more and more premium including there is enough critical mass of IOS devices, focusing on iOS can, focusing on iOS app store, focusing on CTV, OEM, app stores and inventories, which are more premium in the market, getting to more premium users for our advertisers is the way to solve it, and this strategy is already in place. And thankfully, was already in phase preemptively before this RMG impact. But what will solve all this going forward? It will take maybe a few more quarters. But the strategy is clear and the direction is right. And we will -- once RMG budgets come back, I think we will be the first company to truly take them on to a profitable advertising campaign. So we will deliver value for them, and we are ready for it.
Understood. Understood. And my last question is for Kapil. We have seen -- on the cost side, we have seen almost INR 7.5 crores increase in the other expenses. Is this because of the marketing expenses in the developed markets? And how much will it -- how much of it will continue going ahead in Q4 and in FY '25?
So as mentioned in our commentary, we had -- we said primarily -- that this is on account of marketing spends we have started incur post the COVID and the impetus comes in maximum, but however, Q4, there are many events lined up internationally in India. So I think so the expenses would continue for Q4 before it stabilizes and for the next year.
I can add on to that a bit because I mentioned in my commentary that when we go for a turnaround situation, we need to -- there are 2 ways of turning around, right? One is the way it was being done by some of our leaders who had to let go of their jobs was to become more defensive. Where the business is coming down, you're cutting -- you're trying to spend less. In 2023, by taking the reins of the developed markets directly, our conviction release led to, no, we've got to back it up. We're going to do more investments in sales and marketing because you know what, we believe in our product. We know what we are doing, and we need to back it up. So if you see consistently throughout these 9 months, if you take the 9 months number, you'll see we invested almost INR 30 crores more in these other versus the same period in the 9 months period in the previous year. Now I would say out of [ 30, 15, ] we should have anyways done because of the kind of growth expectations, but we doubled it down to another INR 15 crores and we did INR 30 crores. And you are seeing the impact of that. But this is not a defensive view that all expenses are going up, there's a margin, not at all. This is a more aggressive move, which is showing belief into our capabilities. We're saying, guys, we need to deliver this turnaround and let's make it happen. I'm really glad that we did that and those investments are working and will continue to work for us as we go into 2024.
Next question is from the line of Arun from Avendus Spark.
Anuj, my question is on the India portfolio. You qualified that...
Arun, sorry to interrupt you. Can you please speak a little louder?
Sure. Hopefully, now is clear. So Anuj, I was talking about -- I was asking about the India portfolio. You qualified that RMG is a problem. But is there -- depending in this vertical has completely come to standstill or it is more like a budget getting curtailed for the quarter, and it will be coming up in the -- say, by year end? How -- what is the ground reality right now?
So the ground reality is that the -- this used to be or is expected to be a high-growth, profitable advertising budget. And after the impact of the GST sometime middle of Q2, most of the spending was being held back or if there were advertising budgets, they were pricing it at a level where profitability of those revenues will become a challenge. So in order to fix that, one has to see that our MDA has to find its own unit economics and equilibrium again and adjust to that. And we need to help that category by getting to them more premium conversions, so that they can make higher lifetime value on those users and therefore, get an ROI on the marketing spend, leaving enough room for everybody to make money. So the issue is not only about money going away. I think the issue is that the impact is hitting the profitability and the fundamental ROI of those ad spends and therefore, it's going to impact pricing. We, as a company, will never on pricing. So we will always justify that, you know what, how do we -- because their problem is also our problem. They need to make ROI on those ad spends, and we need to deliver ROI to them on those ad spends. And we want to make sure that we do that with our profitability intact. So I think the challenge is both in terms of the spend is not coming. And if the spend is there, is there some limited budget is still there, then the pricing on that budget is still waiting to bounce back. And we are helping the cost fundamentally by showing to them, "Hey, you know what, when you spend with us, don't worry about pricing focus on your ROI. We can give you profitable users. You will be able to make money. Let's work together." So I think it's work in progress. And as much as I can explain to you the ground reality, I think I've attempted to do that because sometimes we look at revenue as we just not all revenue is equal. Some revenue is worth 20%, 25% EBITDA and some revenue is not worth of that. So I think Affle is very selective and careful and not only taking up the revenue, but delivering fundamental value, otherwise, how would we sustain? Somebody will run a campaign. But if they don't make profit on the next quarter, they will not put the budget, right? So then how do you build sustainable, profitable, consistent growth is by giving ROI to the advertisers and the math of RMG still needs to find profitability and, therefore, sustainable growth. But I think we are fixing it. It's work in progress.
So if I understand what you are saying that the economic part, given the current regulations and how it is shared as it become, the marketable or targetable users in this universe itself has kind of shrunk, which is impacting the spend and which means fewer and fewer users to be targeted at the elevated CPC or a premium CPCU, which means...
I think it will be a mix, not like but what it will -- you need to do a mix so that in each campaign, at least our endeavor, as Affle would be that let's take the most premium segment and the budgets for the most premium segment at the most premium pricing, let's take that theme of the budget, right? I mean, let's say, whatever budget is there for RMG, the most profitable segments I want Affle to lock that and we will the default partner for RMG or any advertiser for that matter in that segment. But it does not mean that there will be no budgets for other users. I mean, that's not what I'm implying. It's not so black and white. It's always more in the gray, but what I'm trying to explain to you is that the unit economics of RMG is shaken by that and it will take time to find its balance. And I'm explaining how Affle is held in that and how Affe will take the -- hopefully, the best part of the budgets.
So understood. Just that if you grow your commentary that without RMG, you would have achieved kind of 20 percentage, one. This kind of implies that the contribution of gaming to our India business is quite high, which was not -- it was not we had in mind because I remember you are saying that no vertical contributes more than 10%, 15%, but it seems like we are quite by this. Is there any other verticals is now high contributing vertical, say, for example, say, currently, something is happening in fintech with the RBI regulating one of the largest intake. So what are the other risks that we are probably running at this point of time with respect to -- because it seems like one or other vertical seems to be always coming and biting us at some point of time. So if you can qualify this risk will be...
Maybe I'll explain it to you in a slightly different way. When I look at -- when I say our business is broad based, what are the -- what is the meaning of broad-based, broad-based means that we are across multiple verticals, across multiple geographies. So India, global emerging markets, international markets across these markets, which are fairly broad-based, existing customer base is very large, new customers are getting joined in, across industry verticals and so on. So at a macro level, overall, when we look at it, of course, there are certain verticals which are, let's say, bigger than the others. So fintech is relatively bigger. Gaming is becoming an important vertical for us. The e-commerce and category, E, S, G, H, which are the 4 categories that we talked about, I would say category H is now bouncing back with travel, right, is becoming stronger, and we are trying to put more investments to boost that even further. But in category E, which is e-commerce entertainment education, yes, there was a time where education was under pressure, but the other verticals were going along strong. In category F, fintech, foodtech, we have put case studies on those several times. We are doing well. FMCG. Now this time, we have put the case study of FMCG, we are doing well. In category G, gaming is definitely strong. And category H., as I said, we are improving. Now within -- when I look at the overall global business of our company, which category is -- in some countries, let's say, in India, this real money gaming or gaming category, reaching close to around 20-odd percent. But when I look at it overall, across emerging markets globally and balance it out, it is not. So I mean, what level of granularity of diversification do we go? Now when we look at the U.S. market, yes, we have already qualified even in my commentary last couple of quarters that, yes, fintech has caused some impact there. But the way I want you to look at our business is that's a diversified broad-based growth business. And in that sense, it is naturally derisked, okay? So it is naturally derisked. And therefore, the -- even if we say that we would have done maybe INR 20-plus crores more or more business with RMG, that would still keep it around 20-odd percent or lesser as a whole space within India. And I think if you ask any other ad tech player in the India market, they are probably way more deeply over calibrated. I would say almost all of them whether it is the publishers or the partners would be easily 50-odd percent plus in the gaming category. Globally, any ad company you look at, they will have more than 50% to 60% or in some cases, 80% of the business is coming from gaming category. We are a well-diversified broad-based company. And if we were not, we would not have been -- so when the U.S. developed markets took a hit, we were still able to cope up because the rest of the 75% of the business in Indian market is doing well.
When RMG had an impact, we qualified it proactively. But the rest of India is still able to keep up that to neutralize that impact. So yes, every other -- because we are a broad based, yes, some vertical will have an issue in some countries somewhere. We must also take confidence from the fact that it is not a one trick only. It is a well-diversified business, and at least it may much better, that we have naturally derisked ourselves by being broad-based, well diversified.
So very helpful detailed answer, Anuj. Second -- my second question is on the margins.
Just to add one thing, what Anuj said was we would have done 20% on Y-o-Y growth. We would have done 24% on Q-on-Q growth if the budgets or the RMG impact would have not been there. I think so it's not 14%, it's 34%.
Now on to my second question, the margins, especially the inventory and data costs, it used to be around 50, 55 percentage and then we did quite a few acquisitions. And then we also qualified that some of those increase in the cost is because of the investments. Now that the growth is -- especially a couple of verticals is not -- is under some pressure. Is there any scope for us to revisiting this strategy and reducing the near-term investments so that of course, long term, we need to invest, but some of this -- is there any scope for this margin going back to 55, 58 percentage rather than currently at around 60%, 62% -- I'm sorry, cost is going back to those levels because there is some headwinds in these categories? And is it right to keep investing in some verticals, is it something that is under the review at your end?
Sorry, which verticals are you saying that we should not be investing in...
No, not at the vertical, at a specific vertical level, but overall, the growth has somewhat in some countries has moderated. Is there any plan to reduce back and go back to those levels of cost levels, cut back on some investments?
Cutback on investments on...
On the inventory and data costs, yes. Inventory and data costs.
So I think we are -- I mean you probably have already observed that we are an assertive growth-oriented company. We -- unless we are forced to, I don't think we will play defensive. So I think this is important to know that what is the DNA of the company. And of course, it has to be a balanced strategy where you're aggressive and defensive both, you can't pay one. But I think anybody who would look at Affle and know us would know that we will continue to be an aggressive growth-oriented player out there, and our postures would hardly ever be defensive by default. And therefore, I would not pull back. I would absolutely say that there is a great opportunity for us. 74% of our business is emerging markets. Whichever way we look at it. One vertical here or there is not going to change Affle over but we need to be a market conquer in these places. We are investing in our products. We are future-proofing our products and capabilities. We have a differentiated proposition. We are going and winning the ecosystem. We are building ecosystem partnerships that will lock in premium relationships and partnerships for 4, 5 years, and that's the kind of postering we are doing. So there should be no pullback. And quite finally, we are not trying to optimized for a percentage point here or there. We are doing what is right for our business with a longer-term view. And that's what we are doing. Even when we were turning around in the U.S., the focus was not only the turnaround quantitatively and deliver some number because we need to get back to those numbers. I think it was to fundamentally strengthen what we are doing in that market, right? So it's like you don't renovate your houses to be at the same level as it was before. You renovate because you are to make it much better. And I think 2023, we have done that renovation, rebuilding the stronger foundation, and there's no reason for us to be defensive, to optimize and pull back anywhere. No, not at all. I think we have a very, very good market position. We need to keep on pushing forward, and we will keep doing that.
Next question is from the line of [ Chobei Single from on Arun Bhait ].
I have a couple of questions. So first, what was the contribution from UIP during the quarter and the organic growth if you can share?
Sure. I will let Kapil answer the split of organic to inorganic, but qualitatively, I just want to make 2 comments before Kapil goes into the detail of the answer. YouAppi, unlike the other acquisitions of the past, which were all, by the way, done in the COVID periods, YouAppi the post-COVID transaction. And given that we had built our confidence both with good cases and some complications with acquisitions, which are always inevitable that our confidence is higher. So we built the pieces of integrating YouAppi within 1 year. And within less than 1 year, I'm pretty confident that we will be able to integrate YouAppi fully within our system. We're already seeing very positive engagements in terms of what we have managed to achieve so far. With that as a backdrop, Kapil to you to answer the latter of the map.
For the quarter 3, the revenue contribution is close to 14.5% from YouAppi and EBITDA contribution is about 10% of our EBITDA.
Okay. And second question is around the international business. So now if I exclude UIC, so we have seen out of performance in the international business. So could you please give us some sense in terms of the U.S. business, so like where is that standing now? And what is the expected growth rate traction and whether things are aligned with our plan? And additionally, if you could share information on our performance in the other emerging nations apart from India?
Well, thanks for your question. Yes, it is absolutely correct that international markets are going well like over that in detail in my commentary talking about how 74% of our quarterly revenue comes from India plus global emerging markets, and we are doing exceptionally well. Of course, international markets, we are doing very, very well as well. And the developed markets turnaround has helped because earlier global emerging markets in India, I think we were kind of consistent there, barring the RMG situation. But in developed markets, we were seeing a pullback for all this time, right? And that's the reason why you were seeing international is not growing as much. But now with the developed markets earlier, they were degrowing, now we have managed to turn this around to get it back to the growth trajectory. So you're seeing a positive impact. And for next -- I think, next 3, 4 quarters, you will continue to see consistent growth in developed markets in the international markets overall. I'm pretty bullish about it, to see anything turn back. In terms of more color on specific non-India emerging markets, well, I would say we are doing broadly well across Latin American markets, rest of Asia Pac emerging markets. Africa is shaping up nicely and so on and so forth. So I think overall global emerging markets is a strong anchor for us. The unit economics of India as well as global emerging markets, it's tough for the competitors to play in. And therefore, Affle's approach and strategy is able to create the right kind of premium pricing to do profitable business. In these markets, it's a harsher territory for other competitors. So yes, there are those competitors, but I think we have a competitive moat, which is stronger than others in these markets. So that's how we are anchored. I hope that has answered your question.
Next question is from the line of Vikrant Gupta from ICICI Prudential.
Am I audible?
Yes, you are.
First, if you could talk about the mobile advertising industry in India in 2020. What sort of growth rate the industry grow at? And how do you think the Affle (India) through it adjusting for the impacts that you quantified on the real money gaming side? Are we growing faster than the industry, slower than the industry? What is your sense? And how is the growth as we exit 2023 for the industry? That's one. Second, on the margins. So I think in Q3, despite a strong revenue growth, which clearly see a margin expansion, which did not come through because of the investments that you talked about. Given your commentary that these are transport investments and you'd like to continue to invest to get that growth in developed markets, what is your view on the margin trajectory of the acquired entities, which you've got the market exposure. We were sort of thinking that at least directionally, the margins were picking up for these entities as you optimize on costs. So is there anything? Those were the 2 questions.
Okay. Thanks for your questions. I will take the second question first because most specific to us and I'll talk about industry, India as well as just generally emerging markets and what kind of mobile ad industry growth and numbers that you see. Now in terms of margin, I think it is absolutely important to see that this is not just usual business as usual growth, okay? So one is business as usual growth, very okay, the sequentially continuity and that's good. This is a turnaround growth. Turnaround growth is where quarter-on-quarter, we were actually coming down in developed markets, right? And then you have to put brute separate to lift it back up to change the entire direction of it and push it back into growth, but in a much more stronger way because when you go back up, let's be better than where we were before, right? So I think that is the kind of turnaround that you're seeing here. And therefore, that has to be seen in light with that, but what did it take to do the turnaround. And therefore, the transparency that we built since May 2023, talking about the fact that, "Hey, we have issues in developed markets. We are seeing degrowth and we need to turn around, and we'll turn it around by end of this year." That commentary, transparency, investing into sales and marketing, not just sales -- I'm telling you the amount of time and effort on the ground as well as intensity of leadership that we have provided to this turnaround, it is a much greater magnitude and the numbers will never show you that. So it has taken us a good amount of effort to ensure that we turn this around to change the trajectory. And one of the parameters that the number is showing you is the other expense that went up. And we have qualified that if somebody is not confident about their product or turnaround capacity, they will not put money on its back, they will not put time on it at, and I would have not put my words on it and credibility on it, then I'll turn it around by Q3. So the fact that we believed in our plan, we had a plan, we executed on it, we were transparent about it. Now you've seen the turnaround together with that, you have seen the symptoms of, hey, other expenses went up. So we're explaining that. That's all. Now do we have to consistently keep on investing this? One that are, no, I don't think so. We don't have to be as aggressive on the other expenses all the time. but give us at least another quarter or so to be absolutely sure. The turnaround is in the steady state. And then from there, we can fit to the normalization levels and therefore, see a margin expansion, right? I hope that has answered your question on the growth commitment and the margin effect.
Got it. So you're saying that we may see a moderation, but you're not sure yet, you'd like a photo...
I would want to reserve my options, that's what I'm saying. I mean I'm not going to spend where it's not needed. But at the same time, I just want to see how things are going, and we will take it up maybe in the next earnings call, okay? So therefore, I'm not committing that I'm going to pull it back or it's going to be lesser. But I'm going to -- you will see it becoming more normalized because what happened in the last 9 months was much deeper effort to turn it around versus what we would have done otherwise if you were just cruising steadily. So I think that distinction has to be taken note of. With respect to, say, now the India market or global emerging markets, yes, these markets are growing well. And I think in 2023, the growth in mobile ad space would have been easily 20% to 25%. Having said that, not all growth of mobile ad dollars, which is there in budgets, like I said earlier, not everything in this is the most profitable segment. So the pricing, the kind of advertisers, the payment terms, so on and so forth, not all ad campaigns and all budgets are of the same category. Affle is playing the premium sort of platform play, not only because we have, as a public company, a certain level of profitability to attain, but that has been the DNA of our company for the last, I would say, 10, 12 years. And that even if I want to attempt to change I can't because it's deeply seeded in our company, profitability, cash flow positive operations and margin efficiency. So a lot of the sales which come in in our organization, those campaigns are checked in detail, whether we should accept it or not accept it. So does it deserve to go in the system or not. Even if it goes into the system, the algorithm is designed in the way that's looking for premium conversion, premium pricing, if we're not making enough margin, there is no point of running that campaign. So I think the important thing to note is that, yes, in India and global emerging markets, there is going to be a very, very good growth for the next many years to come. And that growth is anchored on the simple inside that the ad tech industry is still under calibrating on digital versus the total advertising spends. In China and U.S. and Europe, the total digital mobile spend has gone up to almost 70%, 80% of the total ad spend, whereas in India is well below half of that, okay? And other global emerging markets also, it's well below half of that. So in the next many years to come, we will see consistent growth in digital ad spend in these markets. But because these markets have tough unit economics, not all growth, not all revenue and ad campaigns will be preserving profitable execution. So we'll pick up and therefore, my emphasis on premium inventories, driving premium conversion so that the advertiser sees a higher ROI. And when they see higher ROI, they are willing to pay for that. And that's what is important to to analyze our numbers and that lens is very important. Because there is no other company, in my opinion. I mean, the companies that are large enough to be analyzed, that can deliver this kind of profitability on emerging markets. They don't know how to operate on these cost structures and these unit economics. And the only way is go CPCU, go premium, and that is the only way to make money in the emerging markets, and this is 74% of our business at the moment.
Understood. I just have one more question, if I can ask. So I wondered Anuj an outlook on YouAppi for fiscal '25, so I think we have characterized fiscal '24 as a year where you get where you would optimize on unit economics of the campaigns that they are running, and it may not reflect as much as the top line. So where are we in that? And how do you think FY '25 would play out for YouAppi?
I'm very confident that I think we have done the right acquisition. And more importantly, post acquisition, we have done the right integration. And I think we are smarter. We are wiser. So we have covered our basis based on the learnings of what happened at Jam. And I feel confident, therefore, to say that with YouAppi, we are very optimistic and positive because the product integrations, the platform integrations, the people and process integrations, all of that has moved in way more smoothly than ever before. So either we have gotten -- either we got lucky or we have become better at this as the case might be. But I think it's a combination of both. So my outlook for rest of 2024 FY 2025, with respect to a fully integrated YouAppi is very optimistic. I wouldn't want to quantify it any further, but if you want to know how happy am I with it, I think so far, it's perhaps the best of what we have done.
Next question is from the line of Swapnil from JM Financial.
So I have a couple of questions, starting first with your organic growth. Now if I were to look at your numbers for the last 5 quarters, we have not crossed 15% organic growth any of these quarters. I understand that, that can be partly explained by your weakness in the developed markets, what I fail to understand is that when the underlying market in India, especially is growing 20%, 25%, why are we not being able to compensate for that and at least come closer to the market growth? I mean logically, that should have been the case and below 15% in some quarters, we were low single digit as well. So that disconnect is something which is not clear. If you can explain...
I'll explain to you the math. If your business is growing 25% in India and global emerging markets organically, but in developed markets, your business is coming down by, say, $3 million to $4 million every other reporting period, you will see the overall reporting being normalized down and there's nothing I can do about that math, except for telling our investors that we are not doing well in developed markets, and we were seeing a pullback, and we are trying to turn it around. And now that I'm telling you that we have turned it around, therefore, you see that the revenue is grown. If this quarter also developed markets would have pulled itself down instead of going up, I mean I will still be telling you the same that, okay, we try to turn it around and depend on didn't happen, and therefore, our growth is not there. So in the last 3, 4 quarters, okay, we have been seeing this pullback, consistent pullback in developed markets. The numbers were coming down. It's not about staying stagnant or growing lesser. There's -- it is coming down. And so it is negating some of the growth, and therefore, a 24% or 25% growth or India, global emerging markets is pulled back. On one side, we were turning around developed markets. On the other hand, we saw, okay, RMG has an issue. So therefore, in after the Q1 earnings in July, I think July or August, right, this happened, the announcement of GST, so yes, there were these few significant pull events. And yet with all of that, we ended Q3 in December. With the results that I've announced today, we ended it with the preferential issuance of investment with 15 patents filed and turnaround being achieved. So qualitatively, quantitatively in every way, our financial balance sheet, our intellectual balance sheet, our market position, all of that has turned around. I would say 2023 was a year where you were living in Affle, which was being renovated, fixed at the same time punching ahead and we have finished all of those projects. We are fully renovated. Our foundations are strong. And now we are living and breathing and saying, wow, this is -- we are entering 2024 calendar year stronger than ever before. So it was a tough year, no doubt. But if you are trying to make sense of the numbers and the math, the only way to make sense of it is India, global emerging markets consistently growing well until a pullback in RMG coming in, developed markets was pulling it lower. Therefore, the reporting for last 4 quarters was always not the usual one from Affle. Now this is our fifth year since we went public, and we negotiated all challenges, COVID everything with almost perfection. And I think everybody started believing that in Affle, nothing will ever go wrong. But you know what, it's not like that. Affle is also another company, which is exposed to all kinds of things, but this was an important moment, a challenge -- a significant challenge post-COVID came. How we deal with it? How did we communicate our action plan since May 2023 until now to deliver a turnaround, and I am deeply satisfied with how our team has performed in that context. Has it changed the pieces of growth of the company? Is India and emerging markets going to grow slower now? No, nothing like that. It is what it is. And I think we are reporting transparency and trying to make everybody understand how we are executing. And I'm very happy with where we are.
Got it, Anuj. Just slightly extending that point, would it be fair to say that everything -- the worst is behind us and now we should start factoring in more than 20% organic growth on an overall consol basis because...
I would love to say that, but I think I have been advised by our top investor engagements where just be conservative. There's no reason to be over -- I mean, conservative in guidance on what you should calibrate in your models and give us the chance to over deliver and surprise you. So I think for me, that makes a lot of sense. So please go ahead and model us conservatively and allow us to come back to you with positive results. I can tell you my state of mind is very clear. I want to grow this company, and I want to keep growing this company disproportionately, but most importantly, with much better profitability than any other ad tech industry players in the world. For the next 5 years, I would like to see Affle to set a benchmark that this is how you run this an ad tech company. And I think we will set a great example if we can do that, and that's what we'll work hard for. So from that qualitative message, if you can do a conservative modeling around us, please do so, that will be much better versus if you are always putting it aggressive, then we'll always be under more pressure, which we should not be because we should execute to how the situation on the ground is.
Just to add what Anuj said -- Swapnil, just to add what Anuj answered to the previous question raised by Vikrant that we will -- we like to be keeping the our short-term guidance is in a state because we move on more a quarter to be very sure on how our turnaround plan has gone through. We have done it for the one quarter. Let us give us one more quarter before we come to the next earnings call to give you a more concrete kind of around it.
Very clear. And my second question is...
Also, I think next quarter is significant because there's no festive season. If the turnaround has truly happened, it's not a festive season turnaround. The turnaround that must continue to show without the festive season. So I'm -- our team working really hard, and I think we are on the right track, and we should come back with positive outcomes, but let it be one more quarter.
The next question is from the line of Rahul Jain from Dolat Capital.
Just wanted 2 data points and 1 question. One is that if you could tell what is the current RMG mix if you could share that? And is the non-CPCU business going down in this Q3 is the recalibration of our contract in the CPCU part? Or it's also because of maybe some other decline in the RMG business? So these are the clarification. And just one incremental thought if Anuj, you could share, you said that the 50-odd percent or whatever percentage people are spending in digital should actually go higher for emerging market just like the Western world. So you think this advancement would be a function of better outcome that ad tech player like you can deliver for them? Is it more about their awareness about spending on the premium inventory, as you highlighted? Or is the general adoption that will happen on its own natural pace? That's it.
I'll take the second question first because I just feel like talking about it first, if you don't mind. So I think the thesis of having the conviction in ad tech space for next 3 to 5 years, especially on India emerging markets, broadly speaking, is anchored on 2 key aspects. First, we, as consumers, are deeply spending our time on digital. Our attention is completely consumed by digital connected devices. And therefore -- and that is not likely to change any time shown in the next 3 to 5 years. The youth of rural to urban, all demographics of users, I think we can safely say next 3 to 5 years, everybody would be spending 75%, 80% of their retention span on digital media. On the other hand of the ecosystem, the advertisers, they have no option but to calibrate up and to catch up to spend their ad spends also in proportion of where the consumer's attention is going. So it's a cause and effect. The consumer has already been on the devices, why is the advertiser not catching up fast enough? I mean, frankly speaking, I started Affle in 2005. Since that time, I believed mobile should be the dominant media. And it took a long time. I mean, we're turning 18, 19 years old now as a company and still it is under calibrated. So it's only a natural course inertia time. I think it has to happen. It's inevitable that the spending of the advertisers on digital needs to double up from where it is right now. And in terms of percentage, I think it has to get into that 70%, 80% zone eventually. And I think 3 to 5 years is the time for that. It will have many things. It will have regulation support. It will have technology support. It will have players like us who are seeing better ROI, Gen AI, a lot of things, but I think the fundamental thing is the consumer trend. More and more people are transacting, more and more people are transacting higher value, higher volume on mobile and digital. So that will happen. So this is the answer to your second question. And if I may bother you to could you kindly say your first question again, that will help me to answer it.
Yes. Simply, it was data at what was the RMG mix, let's say, a year back. I think a reverse math suggested 20% plus or whatever is what percentage it could be now. Any data would help here?
Yes. I think I would say around 20%. I mean it's not reverse math. I was actually saying that number, and that is how it was and what we expect. And had it been the appropriate budgets that one had forecasted at the beginning of the year, non-GST time. We already knew. Like I mean, we can know what is going to come in this financial year in the various quarters. And those plans, when I look at it, we see that we should have grown comfortably in India over the INR 150 crores plus revenue. And I mean this pullback in RMG, I think we have talked enough about it. And the fundamentals are clear. What did GST do? It took away the profitability or unit economics change. Therefore, the ad campaigns, which are eventually going to deliver that. I mean, so there is an impact. There is no running away from it. And who will solve this? And how will it get solved? And I think the way to solve it has also been provided some insight into. So that's kind of what we're looking at. And I don't think we should worry too much about it. We should just see it as that it's a blessing that Affle has a diversified, broad-based business. And I mean, these situations will happen in the industry and some will be for a few quarters, some will be for a year or whatever. But I think we'll navigate through that gracefully and sensibly.
Yes. Just one last bit, which was like what led to the non-CPCU part of the business going down? Is it a recontracting or...
No, I think it's not recontracting. Maybe I will highlight the key study that we shared like non-CPU, basically, you can say it's branding or it is some other sort of forms of ad campaigns that are running. And if you look at the case study where we are saying even an FMCG customer, which is typically doing branding campaigns, even for those category of products, we are increasingly seeing greater adoption of conversion-led metrics and doing CPCU business, running ads to drive users, high-intent users to e-commerce stores to convert and to create a purchase transaction eventually. So we are seeing more and more people adopting CPCU business. So I think it's a natural phenomena. I mean, for all practical purposes, you have to see Affle as a conversion-led consumer platform company. And within that space, there will always be some advertisers who want to use our platform and intelligence to run other forms of campaigns, and we won't stop that. But our endeavor is always to encourage them to say, hey, let's go and drive ROI and conversion because -- that's how we are positioned, and that's how we want to be known.
Next question is from the line of Aditya from UBS Group.
I just have a quick question on the connected TV space. So we are seeing the universe there kind of expanding. So just wanted to get your thoughts on how Affle is performing in this segment especially on the CPCU model that you rolled out recently?
Thanks for that question. I love forward-looking questions and especially when they are on our products where we are doing well. CTV is an important aspect of what we are doing, not only because this is an expansion in the market where we are seeing linear TV budgets getting spent into connected TV budgets. So it's not taking, let's say, mobile budget to CTV or digital, which is expanding the digital pie more because spend over to digital in this particular manner. So this is, of course, a strategic area. It's also strategic for us because it is fitting well with our connected devices this course, right? Because it's not just mobile, let's say, in any household, there will be 1 or 2 connected TVs, several smart mobile phone devices. Now how do you create the appropriate contextual sort of engagement and recommendations and experiences for these households is an important sort of aspect in how we run a campaign. So the business on CTV is doing well. In fact, across all verticals, we are blending CTV-rated proposition. So when we -- when I talk about, say, for example, in North America, it's an integrated proposition, we are going and selling mobile and CTV. At least the pitching from the sales team and going to the customer, all of that is happening in an integrated fashion. And it is seen by our customers, and this is direct feedback we've got, that we are one of the few companies that is pitching it as an integrated proposition of connected devices of CTV plus mobile. And some of our competitors are now starting to sort of catch up with that and talk about it. And so it's doing well for us. I think it's building thought leadership for us. And yes, I mean, qualitatively, I would say that in emerging markets, CTV is still at a more nascent level. The market size is not large enough. In developed markets, CTV is a much bigger phenomena already. But when we go there as a combined proposition, mobile plus CTV and the way we presented with our CPCU business model, I think it is being received very well by the customers, and our sales team feels more confident that we have a differentiated way to go to market. So it's helping us in many, many ways.
Got it. And a quick follow-up. Is the kind of data that you get from the CTV or the kind of technology there? Has it evolved enough for the CPCU model to work well in that segment?
See, CPCU model is a calibration, which absolutely works in a scenario where when you combine CTV together with mobile, now -- that's why I was explaining to you that it is CPCU on connected devices. Connected devices, meaning in the household, the CTV is not an isolated device. The CTV is showing ads to a consumer. The consumer is in that household. In that household, he's using also the smartphone and then he and she, if there is a conversion that is created was the conversion created because you showed the CTV ad together with mobile or you showed only mobile or CTV, then it becomes more of a question of attribution. So when we do CTV business, we go to the advertiser and say, this is our product, give us your campaign. I will drive a conversion with the consumer. That consumer is having this connected devices access and we are able to hopefully deliver that, right? So I think the campaign will run across CTV and mobile as a combined pitch with all the units taken into account. But you can't simply isolate and say this is a pure CTV conversion. This is a pure mobile. So it is the conversion is always linked to a consumer, right? And the consumer will have more than one connected devices, and that is the reality we're living. So I think CTV is think of it as another ad unit. On mobile, you can show video ad on CTV, you can show a video ad or a ad and you can show different kinds of ad formats. The end goal is to drive conversion. And once you drive a conversion, you then attribute and say how much was the effect of showing the -- if you showed the campaign on CTV, the conversions were higher. If you didn't put the campaign on CTV, the conversions were lower. So it's I think it's that kind of data analysis that we were to show insight to the advertiser.
Ladies and gentlemen, due to time constrain, we will take that as the last question. I will now hand the conference over to the management for closing comments.
Thank you very much for joining our earnings call today, and for your insightful questions. I have always enjoyed talking about our company and especially so in the context of the fact that we've achieved the turnaround that we had promised and on time, I feel confident, reassured and looking forward to delivering greater outcomes in 2024 and looking forward to financial year 2024, starting from April. So thank you very much, and stay well.
Thank you very much. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.