JustDial Ltd’s shares have underperformed the broader market indices by a huge margin in the past year. One of the reasons cited for this was the delay in the launch of its Search Plus business, an attempt at capturing the growth of e-commerce in the Indian market.
The company finally launched an Android version of the long-awaited Search Plus app, which is a considerable improvement over the previous version. The iOS version is expected to be released soon as well. JustDial shares have risen by 15% in the past week, after the announcement of the launch. Still, one-year returns of the company’s shares continue to be dismal at -45%; especially at a time when the broader markets have been flat.
Could last week’s mini-rally be the beginning of a correction in the company’s valuation? Maybe, but it’s also worthwhile noting that despite the drop in the company’s shares, JustDial is valued at 46 times trailing earnings. Analysts who are positive about the company’s prospects point out that the core listings business is growing at a steady pace, and that the valuations look far more reasonable when forward earnings are discounted. Besides, they say, a price-to-earnings valuation doesn’t do justice to the company, since it leaves out the potential of the Search Plus offering.
For perspective, analysts at Nomura Research pointed out in an 18 September note to clients, “Search Plus (is) taking shape as a one-of-a-kind metasearch plus marketplace offering, with tie-ups with third-party platforms for 10 of 28 services and both offline and online players (viz. Flipkart /Snapdeal /Amazon for online shopping), which will likely aid monetisation possibilities with less capital intensity.”
The company will earn commission when a customer makes a purchase on a third-party site, and is also expected to earn a commission (although this will happen in the future) when a customer transacts with an offline vendor suggested by the Search Plus app.
Of course, there are a number of other services offered such as bookings of movie tickets, buses, etc. None of these potential revenues are currently reflecting in the company’s financials. The $500 million question—that’s roughly the value Nomura assigns to the business associated with Search Plus—is how much traction these services will gain.
The company is known to be cautious with spending on advertising and marketing, in stark contrast to the typical Internet company that spends huge amounts on customer acquisition. This could potentially limit the number of users that end up using its Search Plus services. However, JustDial’s inherent advantage of being the leader in online listings, and its ability to leverage its database, could well mean that the company’s new offering hold promise.
For investors who subscribe to the latter view, JustDial offers an attractive opportunity to ride the Internet wave. Nomura’s price target of Rs.1,800, for instance, is almost double the value of the company’s current traded price.