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  • objectively_speaking objectively_speaking Nov 2, 2005 7:48 PM Flag

    Revenue Estimation: Advertising

    REDF longs have been arguing that REDF has a bright future and has multiple revenue streams ("REDF is the #1 portal in India, has shopping & auctions, and has search."). However, they are intellectually lazy to provide us with any forecast numbers. Instead, their line of argument is that the revenue opportunities are infitinitely large and the at the present valuation, REDF is actually cheap!.

    So I would like to steer this board's conversation to the an estimation of the revenue opportunity for REDF.

    Starting with online advertising revenues from India (whether is portal advertising or search advertising), I make the following assertions:
    - Online advertising market in India can be estimated as a %age of the overall advertising market
    - India's total advertising market (2005) is some where around $ 1.5 to $2.2 billion with bulk of the money going to TV advertising. (Contrast that with the total US ad market of about $300 billion).
    - Online advertising in India is probably around 1% of the total advertising market and REDF has a 30% share of this market
    - The share of online advertising in India (and elsewhere will grow) but in the next few years will be not more than 5% of the total advertising market (See 5). India, with low PC penetration and low bandwidth, IMHO will have only 2% of total advertising revenue

    So in the best case sceanrio, REDF's India advertising revenue will grow to about $13 million (30% of 2% of $2.2 billion) in next few years. Now contrast this with the $450 million valuation.

    1. Size of Advertising Market in India 2001

    Last year, companies spent more than $1.4 billion on advertising in India, most of it directed at the TV market,8782,169840,00.html

    2. Size of Advertising Market in India 2005
    India's advertising industry generates about 2.2 billion dollars annually, according to industry sources. Currently, online advertising comprises less than one per cent of the pie.

    3. Size of TV advertising market in India

    That appears to be the latest mantra for a slew of broadcasters from AXN and BBC World to National Geographic and Travel & Living as they scramble for a bigger slice of India�s estimated Rs 4,500 crore ($ 1 Billion) television advertising pie.

    4. REDF's online ad revenues in 2003
    Q. What is the size of the Internet advertising market in India (2003)?
    A. Our advertising revenue in the September quarter (annualised) was Rs 10 crore. Our guys believe that this represents about a third of the market, which is Rs 30 crore ($7 million). A year before that it was Rs 15 crore. So it has doubled...

    5. Share of online advertising

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    • Very good point - India, with low PC penetration and low bandwidth, IMHO will have only 2% of total advertising revenue

      This is what I have been saying, whether on-line shopping or gaming, India's on-line growth will hit a wall and the hyper growth predicted will not happen. Telecom ministry had targetted 3mil broadband connections by 2005 and it's hardly reached 1mil. I am waiting Redf to 20+ to more shorting.

      • 1 Reply to chappal_pe_lungi
      • Growth may not be as strong as expected in the high speed area, but growth is growth, and there is no denying India is growing and will continue to grow. REDF should keep moving into positive territory, and if high speed sterts to catch fire so should REDF. Anyone shorting is taking a very big risk, this stock has forward momentum and hit a new high today. If anything I would hold or add to positions this is still a unknown stock, if mutual funds start grabbing shares we could we could easily see it double in no time.

        There are to many positives to hope this stock will go down, but it's your money to loose so do what you will.

        The Prophet

    • That's a good advertising analysis objectively_speaking now lets continue on and do one for auctions, music downloads, & games. I am very anxious about what Rediff has in store for games. Games as proven by China is very lucrative.

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