Affle (India) Ltd
NSE:AFFLE
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Affle (India) Ltd
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Ladies and gentlemen, good day, and welcome to the Affle (India) Limited Q2 and H1 FY '25 Earnings Conference Call hosted by Ambit Capital. [Operator Instructions] Please note that this conference is being decided.
I now hand the conference over to Mr. Ashwin Mehta from AMBIT Capital. Thank you, and over to you, sir.
Thank you, Neha. Good morning, everyone. On behalf of AMBIT Capital, we welcome you all to the Q2 and H1 FY '25 conference call of Affle (India) Limited. I take this opportunity to welcome the management of Affle (India) Limited, represented by Mr. Anuj Kanaha Sohum, who is the Managing Director and Chief Executive Officer of the company; and Mr. Kapil Bhutani, who is the Chief Financial and Operational Officer of the company.
Before we begin with the discussion, I would like to remind you that some of the statements made in today's conference call may be forward-looking and may involve some risks and uncertainties. Kindly refer to Slide 25 of company's earnings presentation for a detailed disclaimer.
I will hand it over to Anuj Khanna Sohum for his opening remarks. Thanks, and over to you, Anuj.
Thanks, Ashwin. Good morning, everyone, and thank you for joining the call today. I trust all of you are keeping in good health.
In H1 FY '25, we have delivered a landmark performance on all fronts. We have outperformed H1 as well as H2 of FY '24, and we are confidently on track to deliver 20%-plus revenue growth in FY '25 and convincingly on track to deliver even greater growth in terms of EBITDA and PAT this year.
In Q2 FY '25, we attained our highest quarterly revenue run rate, highest EBITDA, highest PAT and highest CPCU conversions. We continue to enhance our consumer-centric platform offering, delivering synergies towards overall operating margin expansion. We delivered stronger than ever quarterly EBITDA of INR 1,133 million a growth of 29.9% year-on-year, with robust margin expansion. We delivered a revenue growth of 25.9% year-on-year and a PAT growth of 37.7% year-on-year in Q2 FY '25. Our CPCU business delivered about 95 million conversions during this quarter at a CPCU rate of INR 57.1 that helped us achieve a CPCU revenue of INR 5,416 million, an increase of 35.2% year-on-year and 4.6% quarter-on-quarter.
In terms of H1 FY '25, we achieved revenue growth of 26.8% year-on-year, PAT growth of 34.3% year-on-year. Overall, for H1, our CPCU revenue increased by 36.1% year-on-year. Our CPCU business continues to demonstrate strong growth, underscoring the strength of our unified Affle 2.0 consumer platform stack fully powered by a converged AI supply cloud. Together, it enables robust cross-platform efficiency and elevate our ROI-driven CPCU use cases with strong competitive advantages.
With global digital spending continuously on the rise, we see significant opportunities across all our top verticals and key markets, driven by advertisers increasing commitment to digital channels. India and global emerging markets together contributed 73.4% to our revenues in Q2 FY '25 and grew by 25.3% year-on-year. Developed markets are also experiencing sustained growth momentum. In Q2 FY '25, we saw a robust growth of 27.5% year-on-year in developed markets, which contributed 26.6% to our quarterly revenues, affirming the impact of our strategic realignment and platform consolidation effect achieved over the last few quarters.
Our continued investments in technology and new product use cases are yielding positive results. As we expand our suite of GenAI-powered capabilities, we are competitive moat through our comprehensive patent portfolio. During the quarter, we were 2 additional patents in the U.S. related to enabling using interactions with live streams such as podcasts via machining learning and optimizing user identification through IDs, thus enabling high-quality consumer engagements.
In line with our commitment to best-in-class ESG practices, Affle's subsidaries have achieved ISO 27001:2022 certification, underpinning our proactive implementation of robust data security controls and excellence in our information security management. We have also appointed one new independent director to the company's Board in India. With three of independent -- 3 of our 5 independent directors completing their tenure next year, we have ensured a phase transition plan to further strengthen our governance. We continue to innovate and expand our take offerings and use cases, consistently unlocking new client success stories. This time we have included five case studies in our presentation. Three of our case studies cover, India, Brazil and Indonesia regions, highlighting our unique capabilities and scaling fintech services across emerging markets.
The other case studies highlight our success in driving increased e-commerce usage in the United States through iOS SKAN-based optimizations, and our global success in geo targeting high-value gamers to drive conversion for gaming advertisers. Our Affle 2.0 consumer platform stack continues to be recognized as the top performer. And we recently won the gold award across mobile marketing platform and e-commerce and q-commerce categories at the ET BrandEquity's Martech+ Awards 2024 5.
With that, I now hand over the discussion to our CFO, Kapil Bhutani to discuss the financials. Thanks. Over to you, Kapil.
Thank you, Anuj. Season greetings to all. I hope all of you are keeping safe and well. Continuing our strong business momentum in Q2 financial year 2025, we delivered consolidated revenues of INR 5,429 million, a robust growth of 25.9% on a year-on-year basis and 4.5% on a quarter-on-quarter basis. It was a broad-based growth across industry verticals and across our markets. On a standalone basis, India grew by 31.6% year-on-year, while on an adjusted basis, India growth was about 19% year-on-year.
EBITDA for the quarter stood at INR 1,133 million, an increase of 29.9% on a year-on-year basis. Our EBITDA margin rose 29.9%, which is an expansion of 65 basis points on a year-on-year basis and 76 basis points on a sequential basis. In H1 FY '25, our EBITDA increased by 31.8% on a year-on-year basis to INR 2,178 million with an EBITDA margin of 20.5%.
In terms of OpEx, our inventory and data cost stood at 61.1% of the revenue from operations in this quarter with a sequential reduction of 53 basis points, while a marginal increase on a year-on-year basis. As we continue to calibrate our platform offerings on our premium inventory using deeper ecosystem level partnerships in line with our discussions during the previous earnings calls. Our employee cost declined by 3.3% on a quarter-on-quarter basis as a past investment in human resources, coupled with integrated team strategy are poised to provide us the efficiencies over the last three quarters with normalizing human resource cost for us.
Our other expenses stood at 7.6% of the revenues versus 7% in quarter 1 last year, increasing margin -- increasing primarily on account of our ongoing investment in business promotion activities and trade events participation, particularly required as we expand our product propositions as well to expand our footprint into newer geographies.
We achieved profit before tax of INR 1,135 million in this quarter, an increase of 55.1% on a year-on-year basis and 6.5% sequentially. Our profit after tax for the quarter was INR 920 million, taking an increase of 37.7% on a year-on-year basis and 6.2% sequentially. Our effective tax rate stood at 18.9% during this quarter, which was in line sequentially. As guided in quarter 1 financial year 2025, we see the effective tax rates to be a normalized tax rate for us.
Our operating cash flow for H1 was INR 1,459 million, with an OCF to PAT ratio of about 81.7%. We continue to prioritize efficient working capital management as there is no material changes in our collection risk. Our strategic investment in platforms, people and healthy balance sheet have reinforced our competitive position supported by strong cash flow generation and robust financial performance. As the global digitization accelerates, we are well positioned to be sustaining our momentum through financial year 2025 and beyond.
With this, I end the presentation, and let the floor be open for questions.
[Operator Instructions] The first question is from the line of Ashwin Mehta from AMBIT Capital.
Congrats for a good set of numbers. My first question is that we've seen equalization of growth in India and EM along with the DM growth, which is a positive. So qualitatively, if you can give us a sense in terms of trends in India versus EMs? And how are you seeing the holiday season in 2H pan out across geographies? Do we still see a similar seasonality in 4Q as we have historically seen or the pace of customer addition is strong enough for that seasonality to not necessarily be there?
Thank you, Ashwin. The result definitely for Q2 have been all around strong results, be it India emerging markets overall, including India and developed markets. And we remain very confident about what we can achieve over the long term in terms of sustainable growth momentum across all of these key regions. Especially for this financial year, I have in my commentary also very clearly mentioned that we expect very strong profitable growth for the company, stronger than the revenue growth with margin expansion. And even on revenue growth, over 20% growth for this whole financial year is where we are headed, very, very confidently and convincingly.
With respect to the festive quarter, I think the month of October has already gone by, and we have seen strong momentum for this quarter, like we typically see. October, November, December is typically the best quarter of the financial year, even though last year, we were able to beat that in Q4, this year, again, we are keeping that outlook that we will have a strong Q3 and a strong Q4. And therefore, we are very, very comfortable across all the key regions that we are operating in the key verticals that we have. I think it's a very privileged position to be in, that we are a very naturally hedged company with broad-based presence across global markets as well as within those markets we have quite a number of verticals that we are addressing. So it's a very good place to be in.
That's good to hear. My second question is more broader in terms of the key trends that you see under GenAI for advertising and how are we preparing for the same because areas like personalization, content creation, data and insights, all have material implications from GenAI. So it would be good to hear from you in terms of the steps that we are taking to be prepared for this.
Sure. So today, a lot of our products use cases have already incorporated GenAI capabilities within them, whether it is new gen or creating vernacular content, ads, as well as keywords as well as helping our advertisers who may not have all of those vernacular capabilities to on the fly using GenAI creating and curating those assets. So creation of ads or content or supporting that because that's something that our GenAI capabilities are already powering some of those use cases.
We're also seeing a lot of GenAI implementation and optimization of our operating leverage. So as our company is growing and we'll keep growing in terms of revenue, I think on the operating expense side, we will see some efficiencies of GenAI because perhaps we don't have to go ahead and increase our operating cost that much. So we will have more productivity from our base of employees and that would lead to much more margin expansion as we go along. So I think that's another area of positive impact that we are seeing.
Now when we extrapolate this further, let's say, into a longer-term vision of how in a GenAI world, with all kinds of agents and bots where you'll have, each one of us might have a personalized GenAI agent representing us as an authentic alter ego helping us to do certain other things in the digital world on our behalf on a authentic delegation. Each household may have its own agent, right from dealing with what the fridge might order for you or deal with other gadgets in the household and basically looking at every corporation would have a digital agent, every individual would have a digital agent, every household would have a digital agent. And a lot of these online interactions would happen between human to agents, agents to agents and so on.
Now as far as one can intellectually map these possibilities, Affle within its context of digital advertising has deeply mapped these possibilities into the future. On what we standpoint for and what we believe is the best way to curate this future, that road map we have built. We have then distilled that into 15 unique intellectual property patent applications that we have already filed, which is on record as of December 2024 itself. And so we are clearly showing demonstrable steps to our shareholders that we are preparing forward, not only using GenAI today in our products, in use cases, bringing it to the advertisers, but also using it deeply in our operations and enhancing productivity of our teams, but also providing a much longer term, like a 5-year forward road map to what all could happen here.
And are we prepared? Are we thinking ahead? And I think the answers lie in the patent portfolio. Some of the clues you can find from there on what Affle is thinking and planning for. I feel at the moment that as far as we could have prepared ourselves, we are ready and we are future-ready.
The next question is from the line Deep Shah from B&K Securities.
Congrats on good set of numbers. The first question is around this antitrust legislation, which is going on in the United States. So whilst it might be sub-judice, I don't expect a comment on the particular legislation per se, but if you could help us understand how does it impact our industry and in which condition we are better off because the initial hypothesis suggest that should that condition or should that legislation go through, our condition is actually better because the strength of the leader comes down. But that is the initial hypothesis. Is that true? So your comments on that would be very useful.
Second, so when -- earlier one question, when we say 20% growth, you mean for the medium term, right? Because given how well you performed in first half, this year, growth should be much higher. I understand that Jampp recovery happened third quarter last year, but then we also had the India GST impact on RNG, which shooed away those revenues. So just a clarification question on near term that when you say 20%, it's for the medium, right, FY '25 growth could actually be higher given how well the first half has been?
Thank you for your questions. Regarding the antitrust case, it's very important to understand that we are navigating in an ecosystem where when we approach an advertiser, our customer, they're not asking us, "Hey, how do you compete with Google?" They have a separate budget for what they are spending on Google's platform. And typically, we have a separate budget where we're looking at. The team is different. The team that is looking at non-Google, non-Facebook, non-world garden platforms, and those budgets, those teams are different. So we, in many years, have not been asked this question, why should we spend with you, why should we not spend with Google? Whereas when investors like you would look at it, you look see it as one whole sort of common space.
Having said that, the spaces are sort of interrelated. I mean if an advertiser is spending less on the walled-gardens, then consequently, they would -- chances are they would spend more on a non-walled gardens, right? And therefore, the thesis is clear that we are net-net seeing a more bullish outlook towards the non-walled gardens because it's not only the antitrust issue, which is challenging these larger players, but also the data privacy laws, right, across jurisdictions. The data privacy laws are not as worried about Affle as we have perhaps worried about what Meta, Twitter, Google and platforms like these are going to do in their respective countries.
So a lot of these antitrust or data privacy related regulations and so on are actually strengthening the non-walled garden, right? So platforms like Affle would actually benefit much more. And you can see that in other public listed -- some of the other public listed companies in the U.S. I think the performance of how those companies or the multiples that the investors are putting into their performance is an indicator of that, right? Because people are seeing that, "Hey, in the adtech space, all these larger macro trends are providing long-term tailwinds to platforms like Affle." And therefore, we are again quite bullish and excited about the global possibilities that we have, including developed market opportunity that we have ahead of us.
Regarding your second question, I have learned over all these years that while as a DNA of our company, we are a super growth-oriented -- aggressive growth-oriented company, while we are very, very strong in our DNA to defend bottom line financial fundamentals. Having said that, being conservative when giving forward outlook of growth cannot be going wrong. So giving 20% plus, and the plus is very important, revenue growth outlook for this financial year is an important message. But more important than that is that we are seeing that we are convincingly looking at providing greater growth percentage on EBITDA and PAT in this financial year.
The longer-term outlook also, I would say, if you do a 5-year modeling for our company going forward, look at it on an annual compounding top line 20%, bottom line 25%. This kind of an annual growth compounding is something that is a sensible modeling to do for our company. Given what's happening in GenAI, given what's happening with respect to antitrust, data privacy laws, all of that taken into account, I believe this is achievable. It is realistic and that is what is exciting about leading this company.
The next question is from the line of Swapnil Potdukhe from JM Financial Limited.
So I had a question related to your cost. So on a quarter-on-quarter basis, if you see last 2 quarters, we have seen some decline in your employee benefit expenses. I understand that you had taken some cost reduction effort decisions over there, so that's okay. What I'm not able to understand is like your -- in the balance sheet, your other intangible assets seem to have increased meaningfully over the last couple of quarters? So if you could just address that, that would be my first question.
I'll take this question. When we added YouAppi in last year quarter 1, we have started integrating that stack and developing newer models on YouAppi for a greater integration platform. So YouAppi came in and say -- you can say the investment in the YouAppi platform started in quarter 2 last year, you would have seen the spike there.
With regards to our preferential issue, which we raised last year, we had clearly mentioned that we'll be putting additional effort on the GenAI side. And we had clearly marked 50% of our raise in the preferential capital towards developing the GenAI technology over a period of time. At the moment, we are not putting up a very great pressure on -- or a great budget on the AI side, but our normal plans on AI -- development of AI technology is taking shape, and we are increasing our investment a little bit. So you can say that there is an increase of over 10% on a year-on-year basis kind of a thing on the intangible side.
Okay. Any go-forward guidance you would want to give on the capital allocation that you're doing?
For this year, you mean -- for next 2, 3 quarters, this is the go-to trend. What you have seen in H1 is going to be a trend for next 2, 3 quarters.
Okay. Got it. And the second question is on your gross margins. So how do you see your gross margins moving in the medium term? We have been around this 61% cost for a decent period of time. I mean if you can just guide us, will we see some improvement over there? Or we should build the current levels of gross margins?
You can build us on the same model as the current quarter. As we have mentioned in the last few calls that we are integrating and we are going deeper with our premium placements in OEM inventories, right? And our efficiencies are coming in into the bottom line from other line items, and we are happy with the current proportion of the medium margin and other margins we earn, as we are delivering the efficiencies of EBITDA and PAT, right? And we believe that in the next 2, 3 quarters onwards, you will see some improvement on the efficiency in data inventory cost also. At the moment, you can model us for medium term on the same basis.
The next question is from the line of Vijit Jain from Citigroup.
My first question is, in India, if I look at the e-commerce space, the fintech space and possibly even the entertainment space now with Zomato probably launching District. We're starting to see likely a bigger uptick in push to acquire new customers or retarget dormant customers, et cetera, right? So do you especially benefit from that also in 3Q ahead with q-commerce and foodtech space in general? So my question is likely near term as well as more longer term because I can see e-commerce, fintech, entertainment, all these categories kind of heating up. So that's my first question.
You may ask your second as well. I'll answer both of them together.
Yes, sure. My second question was, in U.S., if I see some of the other digital advertising platforms like AppLovin, et cetera, they've seen some pretty solid growth rate in the quarter -- current quarter as well, and the outlook that they've given ahead is also pretty positive. So my question was outside of the walled gardens in the U.S. and digital ad market, do you -- could you give a sense of where you're growing relative to the rest of the industry or what you would consider your comps in general? That's my second question.
And I also had a last question, which I'll just throw in here. In terms of strategic partnerships that you do, are there any OTT apps as such that you think you could do a strategic partnerships with and that would be beneficial from expanding your ability to serve ads in general? Those were my three questions.
Thank you for your questions. Regarding India and e-commerce, fintech, entertainment, gaming, all of these are important verticals that you have named, which cover our EF&G categories or vertical, and even hospitality where travel finds its place there or even health care. We are seeing that in most of the emerging markets, not India, look at Indonesia, look at Brazil, look at Africa, all of these emerging market regions have similar trend lines in these verticals, and it's all about growth. And what is fueling this growth? You know new smartphone users, existing smartphone users upgrading to higher income levels, higher quality of devices and so on, each consumer is doing more volume of conversion, and they are also increasing the average value of those conversions. So the digital transaction space is growing and going up.
And all the consumption, all the bread and butter consumption, like basic things, these are all lifestyle, right, e-commerce, fintech, entertainment, gaming, health care, education, these are fundamental consumption, which will be there on a very broad basis over the long term. And having transactions on that from digital platforms leading to user acquisition use cases, leading to retargeting those users for repeat conversions through the lifetime of their journey not just driving conversions through online devices, but also trying to drive footfalls of these important consumers to the physical stores or locations of these brands and advertises, all of these 3 use cases will continue to thrive for the long term in the emerging markets, and we will continue to benefit from it.
Talking about United States, and we talked about some macro trends earlier, which we are bullish about, we also asked about what are the comparable companies, who do we benchmark, who do we follow and track and see what's happening, certainly AppLovin, certainly the Trade Desk. One is more focused on CTV, the other one is more focused on gaming. And what's unique about Affle is that we are way more anchored on India and emerging markets at the moment, and we are entering into developed markets in a stronger way, more calibration on that dimension. We have also strengthened our gaming credentials.
You'll see the case study that we have introduced in our earnings presentation. Several times, we have shown gaming case studies. We are very strong. If you look at AppLovin, they're talking about their focus areas are gaming. They talk that they are a gaming company, and then they talk about adtech, and now they're starting to talk about e-commerce. Trade Desk, very focused on agencies, very focused on CTV.
Affle is quite unique. If you look at our direct-to-customers' business, over 70% business is direct to the customer and advertisers. The agency component is -- agencies are important strategic partners and channels, but we have a good balance overall. I think gaming, CTV, I think we are very well balanced as a company and not over-anchored on one particular country or one particular vertical, whereas, of course, U.S. is such a large market.
But I mean, while I'm saying it today, let's say, next 3 years, if our U.S. business continues to grow, it will have a dominating effect overall in the company. So if you see AppLovin or Trade Desk, they are largely -- the biggest part of the revenue is coming from U.S. and it's anchored on a few key verticals and that's it, right? Whereas Affle is a much more broad-based de-risk organization today and fast growing as well.
Third question, strategic partnerships, I wouldn't say as much focus on the OTTs at the moment, but we are looking at CTV on a broad basis and seeing right from OEMs or other content partners. In CTV, we are looking at it in a much more holistic way from a consumer journey perspective. and trying to do a strategic partnership where it is appropriate. But I wouldn't name or call out any specific OTT for strategic partnerships.
The next question is from the line of Deepak from Sundaram Mutual Fund.
My first question revolves on vertical. I just want to understand, is there any particular vertical that you may want to highlight, which you'd hope the revenue growth in both EM and DM market, and how is your conversation with the Fintech vertical in U.S.A.?
Thanks for your question. So we look at our categorization of verticals into categories E, F, G and H, and we enumerate that in our earnings presentations forever, as and like since pre-IPO until now. And we are seeing categories E and F and G are the very strong categories and H is still catching up. In categories E, we see e-commerce as the leading category, beating vertical; in category F, we see fintech; in category G, we see gaming. So these are the three verticals. Incidentally, the 3 case studies that we have also highlighted this time are covering these three; fintech, e-commerce and gaming across different geographies.
And we see that these will continue to be strong resilient verticals, I mean, barring 1 quarter here or the there, one country or the other. I mean, there will always be some hiccups along the way, but those are just hiccups, and we see long-term sustainable growth in these verticals across geographies. In North America or in the U.S. market, we see fintech as also an important vertical. We do have a few of the customers where we are doing well for them, but we see a lot more emphasis on gaming as well as e-commerce because we are strong in all of these 3 verticals, right?
So we are keeping a balanced approach and going out there and try and win customers in this area. But I remain very, very positive about the outlook of not only these verticals, but the other verticals as well in our overall category. So we see broad-based consumption increasing on digital. Even in developed markets, we see a lot of scope for greater growth.
Sir, my second question is relatively long term in nature. Now as we have done our platform integration and it's a consolidated platform, would M&A be still a priority for us? Or would M&A take a backseat since, first, we would want to reap the full benefit of this platform integration and then maybe focus on M&A? And would a subsequent acquisition, if at all if it happens, would the integration will be much quicker since now it's a full stack for us?
So I think what we have done is in our integration, I talked about it, in fact, we call it the converged AI supply cloud that on the backbone of how we are consolidating, ensuring that we have consolidated our power of all the different platforms and integrations in a certain way and a certain process, I think we have achieved that successfully so far. There's still always work in progress and things that we can improve and do, and we're always working on that.
But in the longer term, I would expect that any other acquisition that we will do, now we feel much more confident especially after having onboarded YouAppi and integrated it as an organization as a platform within the Affle group in less than a year. We feel very confident that we can absolutely achieve full integration within 1 year of any acquisition, make sure that we bring the acquired business to similar levels of profitability, let's say, 20% EBITDA or so within the first year. And we see -- and we have actually shared that the last time when we did the YouAppi acquisition, we had indicated it, but with some caution because we were just coming at the back of the Jampp-related unique challenges. But I think we were very successful in demonstrating what we did in YouAppi.
So going forward, also, we would be looking at acquisitions, certainly. I wouldn't say that, no, we have done with it, neither am I saying that we are going to focus on this acquisition. It's going to be a carefully calibrated approach. Acquisition is always and should always be carefully calibrated, and we have a very good track regard on that. So there's no reason to not keep pursuing it. But at the same time, what has worked well for us will be what we will do even going forward. We'll be very careful. We'll do the assessment. And our guiding principle to all our investors and analysts who are tracking us is that we will -- the acquired business should not put a drag on our bottom line margins or performance.
We will make sure that during the first year of the acquisition, we bring it up to speed to 20% EBITDA and so on. If we are not confident about delivering that, chances are we will not do the acquisition, right? So we look at all respects of it, strategic alignment as well as bottom line financial fundamentals and the ability for us to integrate it and bring it into our journey. So all of this will be taken into account comprehensively if and when we do another acquisition. I hope that answers.
Yes. Sir, my last question would be regarding...
Sorry to interrupt you sir, I request you to come back for a follow-up question. The next question is from the line of Anmol Garg from DAM Capital.
Congrats on good set of numbers. A couple of questions. Firstly, Anuj, wanted to understand that from -- in the last few quarters, we have seen a non-CPCU business reduced to now negligible levels. So has this business been classified to CPCU business? And -- or has there been any closures of contracting the non-CPCU part?
See, even when we had the non-CPCU business, I had always provided such guidance that we expect this business to graduate to becoming CPCU business. And we educate our advertisers, incentivize our teams to ensure that, that happens, right? So the focus has been CPCU business. I mean it is a single cash-generating unit. As an organization. It's a very, very strong business unit.
Even when we do acquisitions, you will see that we are always talking about transforming those acquired businesses into CPCU. Sometimes we have non-CPCU components and so on, and we are aligning it back, and making sure that we are doubling down, tripling down focused on this because we are still, in my view, a very small company. We have a long, long way to go. There's a lot of market share to be won. There is a lot more territory to conquer in the CPCU business globally. So this is how I would like you to look at it rather than seeing it as for something is lost in the non-CPCU part, not at all.
The gain in the CPCU part is where the focus has to be. And if there was anything material that we have lost or something to be concerned about, our governance process would have absolutely disclosed it in the way that we have always brought not only good news, but any challenges. So there is nothing that you should spend your energy on over there. You see it as CPCU business is growing fast, is doing well. There's a lot more to be done there. Affle is a focused company. And while it is doing everything on CPCU, it is also very naturally hedged across verticals, across geographies. That's how I would like you to analyze it and maybe not too much focus on the non-CPCU part.
Understood. And secondly, if you can indicate, if the R&G spends have come back to pre-'24 levels? Or do you believe that it's still much lower and there is opportunity that those spends might come back in coming quarters or years?
I think it is different. I mean when we look at numbers, life becomes easier. The number is the same. I mean the ecosystem is evolving. The landscape is evolving and the R&G segment is evolving. This segment has huge potential for further growth. So there's a lot more to be achieved. I wouldn't say that it has bounced back in the same way to the same extent, but I would just say that where we are today, we are comfortable with it. From here, we see a clear path of growth. So we don't see anything pulling it back at the moment. We see a better, more sensible calibrated growth, let's say. So sometimes you need a bit of shake up to settle things back, and then have a more robust foundation to build upon. And I think that's what has happened in the R&G segment.
The next question is from the line Arun Prasath from Avendus Spark Institutional Equities.
My question is on the balance between the growth and margins that we have so far done beautifully over the last 2.5 years, 3 years. So sometimes you have come out and said that there is an opportunity, so I will a little bit invest more and that's how the growth will be higher in the future, and sometimes you have held back this. So right now, where we are in this cycle? Are you seeing that the investment is enough and that should pay off for the growth or is it time to cut back? So little bit thoughts on that, please.
I think in terms of balance between growth and margin you're pointing, I think our company has a very strong DNA. I mentioned earlier, we are an aggressive growth-oriented company. And we're a very long-term player thinking 10 years, even 20 years ahead, and many you've heard disclosures and internal conversations with key leadership team members. And at the same time, we have an extremely strong DNA towards, okay, how are the cash flows, what is the profitability? So both of these aspects are core to the DNA of Affle, growth powered by product innovation, being future-ready, thinking long term. At the same time, very clearly what is the daily cash generation, weekly cash generation, monthly cash generation. I mean the discipline as well as the ambition, both of these aspects are there.
In terms of balance, you're asking to choose one or the other business. It is a deep part of who we are. There is no way to say, okay, this quarter, we'll focus on this and not that. I think it goes together. Fortunately, for the kind of business that we have, we can actually achieve both. Why? Because it is an asset-light business. It's a tech platform business. On the cost side, if we are having the right kind of talent and algorithms, the cost shouldn't grow that much, and the business should be scalable. So if you're aggressive, get more customers, get more market, more geographies, more verticals, let's get it on board.
The only area where we make a clear distinction, and that I would continue to make, it's not about balance, it is business fundamentals. There's all kinds of advertising revenue out there. You can go out there and tell somebody, "You know what, I will make almost nominal margin, give me your business, give me INR 50 million more of the business, I'll get you so many more conversions and so on." There can be loss-making, low margin, what I would call poor quality revenue, and such revenue also exists in the market.
Now we are a disciplined company. We say no to that. So if we are getting a campaign or an advertiser who is basically wanting conversions and not ready to pay the right CPCU pricing, we're saying, "No, hang in there, we have other advertisers, we can pull the price up." There is -- we don't have to take the lower quality of revenue. So we are very clear that we are looking for profitable long-term sustainable growth. We are ready to say no to revenue. We're not trying to just bring you a higher revenue and lower profitability and then saying, "Hey, we'll make money out of it in the future."
I'm saying there is no such scenario. And we are very clear that there's enough revenue to make which is profitable today. We'll continue to be and we don't have to compromise margin or growth. We will not compromise margin for growth. And that is our DNA. That is who we are as an organization, and I don't think that will ever change. I hope that answers your question.
This is illuminating, but I was asking more in specific with respect to, say, verticals. Have you invested enough in all the verticals that you are confident that you don't need further calibration there? Or you think there are some verticals where you are weak, so you have to invest and there is a growth available or maybe in certain places where the competition could be strong, probably you need to invest more. So from that perspective, can you help us understand this?
Sure. So in terms of organic investments that we are doing, which Kapil also talked about earlier that we're constantly improving our tech platforms. We are constantly investing and improving. So we are not seeing, look, we have invested enough, let's enjoy the ride. We are constantly pushing for further improvement. There's a clear road map at all points in time. So there is no complacency. There is alertness and there is ambition to go ahead and keep improving and becoming better and better and better. So there is -- in terms of am I comfortable with the level of organic, continuous ongoing investment that we are doing? The answer is yes. Is that sufficient to beat any competitor in the world, in any market in the world? I believe the answer is still yes.
In terms of investing to, let's say, strengthen or double down on certain verticals, in certain markets and doing acquisitions for that and investing into those acquisitions, I have also answered that we will evaluate it carefully. If we see enough strategic leverage in value in who we meet as a potential acquisition candidate, we will look at it. If we are confident that we can deliver strategic value as well as financial fundamentals, even in that within the first year, we will go ahead and do those acquisitions. So I think that's my answer to your question. So we are investing in all the verticals. We are constantly investing to improve organically in those verticals.
All right. Second question is on the competition. Maybe we have become a reasonable size in some of the emerging markets and in India, maybe we are small in DM markets. But in these specific markets in, say, India, Indonesia and other emerging markets, how is the competition now as compared to say 2 or 3 years ago? Do you see smaller players getting eliminated and only those survived are coming there? Is there anything advantage we can gain out of it because having become bigger in these markets, can we push more and, say, at a much higher margins, at a much higher growth? Is it the possibility or we have still not reached that stage in India and emerging markets as well?
I think it's still work in progress stage. In terms of competition, the good news is that most of our advertisers or ecosystem partners, they are evaluating us with all the, let's say, top global players that one would -- some of them we named earlier in the call, would one would look at. And we bring in our best people on the ground in all the emerging markets, whereas most of these other, let's say, global companies listed in the U.S. or in Europe are focused on developed markets and their best people are fighting the battles in developed markets because there's a disproportionate revenue for those companies from those markets.
So they hire maybe one-off here in their country director in some of these emerging market regions. Even though they come from these big global companies, their ability to compete against our best people on ground, I think that gives us a lot of advantage in terms of how we execute in emerging markets. So competition-wise, I think we have found ourselves in a good place.
We compared with the best and beat them in emerging markets, then use those credentials and case studies and go and win in develop markets again them and say that, "Look, we are beating them in complexities of emerging markets, give us a chance in developed markets as well." So I think those kind of competitive positioning is how we are navigating. And at the moment, I would say that the numbers that you see and the growth and the margin expansion is at a sensible, sustainable level.
The next question is from the line of Adnan Amroliwala from [ Boston ] Research.
Congrats on the good set of numbers. My first question is related to any guidance on CPCU rate, you said that mainly for internal CPCU rate is basically premium inventory and direct markets. So any guidance on that?
Okay. I think I've heard you correctly, even though the voice was a bit muffled. I'll try to answer, hopefully I'll get it right. In terms of the CPCU rates, what is the most important factor for us to extract better CPCU rates from the advertisers is what we call competitive bidding. So if we have a broad base of customers and they are all fighting to get the same conversion at that time in that month or in that time of the campaign, then we have the ability to make sure that we can get -- command a CPCU rate. So that is one of the factors, create the competitive tension, make sure that, "Hey, bid higher for the CPCU rates?" That's one.
Second is, can we take it to unlimited levels of height? No, there is another factor, which is that what is the fundamental value of the consumer's conversion. What is the lifetime value of that consumer's wallet for this particular advertiser? And if you are converting that consumer for this advertiser, will it make ROI eventually for the advertiser, right? So those are the kind of parameters and boundary conditions within which we operate.
One, get to highest level of margins by making sure there is competitive pricing so that we're selling it at the right price, pushing that right price to a level where the advertiser is still making money, right? It has to be a win-win proposition. And otherwise, it wouldn't work. So I think those are the ranges in which we are working. And to get to the premium users or the premium conversions, which have high lifetime values, go to premium touch points, go to iOS devices, Samsung devices, go to AppStore inventories, go to the right kind of consumer segments to drive premium ROI for the advertisers. But then you also want scale, right? So it's not just about premiumness.
So we are looking at this in a balanced way, and we believe that the CPCU pricing will continue to move in the right direction overall in terms of it will keep inching upwards as we have already done over the last many years.
Perfect. Sir, another question is, can you just clarify to me, how does the inventory cost comes? Does it -- how does the contractor publish it? Is it like you buy the inventory and pay them upfront? Or is it a revenue sharing basis? And secondly, sir, how much of the inventory cost is forward-looking? If you can clarify that.
I don't know if I can answer everything and some of that would result in trade secret, but I've been very clear that we are buying the inventory, we are paying for the impressions or showing the ads, and we're charging the advertisers for driving conversions, okay? So on one side, we are basically the buyer of advertising space. And on the other hand, we are taking responsibility for driving the end conversions and therefore, charging the advertisers against that.
In terms of whether it is just the price per impression or effective price per impression or are we doing a revenue share? I would like to reserve that. In certain publishers, it could be a revenue share. In certain publishers' case, it would be just a clear bidding based process and using our intelligence and making it happen. So there, it is -- where we have strategic partnerships, we may do revenue share. But most of the supply sources are connected programmatically, we are bidding for it. We're buying the space. We're using our advertisers. We're making sure that we're optimizing and maximizing the outcome for the advertisers at the lowest cost of converting the user. So yes, I don't know if I missed any of the other questions, but that's as far as I can remember, you're asking me about -- and yes, you asked about the forward looking, how much is forward-looking.
So I would say at any given time, let's say, in India, we are also looking at calibrating deeper to understand those consumers who are non-shoppers today, right? So in India, there are 700 million, let's say, connected devices. Out of that, what percentage of those devices are shoppers today? We constantly keep predicting that. And so a good part of the spend goes in that dimension as well across not only India but other emerging markets. I wouldn't quantify it today, but I would say at least 10% to 15% of the cost is forward-looking.
The next follow-up question is from the line of Deepak from Sundaram Mutual Fund.
So sir, my question was around CTV. So as we are talking about more premium inventories and entering into CTV channel, I just wanted to understand what will be your approach to managing the ad latency and buffering issues, which is prevalent in CTV because if your consumer doesn't completely engage with the ad and switches between the channel in CTV, that could lead up to higher inventory costs for us, right?
See, so far, we haven't faced the specific challenges that you're talking about, about ad latency or switching cost to the consumer because the way we look at -- maybe the companies that are only focused on CTV and there's just one dimensional engagement point with the consumer, maybe trying to grapple with some of these aspects. For us, CTV is one additional touch point in that consumer's life, so that consumer is on their mobile phone, they're in their office, they're traveling, they're coming back to their home, they connect to their households. They're still on their mobile device, and they then go onto the CTV. There are multiple mobile devices in the home because there are multiple individuals, maybe there is 1 CTV or 2 in different rooms of the house.
The CTV is one channel to influence the consumer, and the mobile and other touch points of the consumer journey are very important to the overall connected device experience that Affle talks about. So in this process, there could be certain challenges, whether it's ad latency or something else. But eventually, what we are talking about is how most of the tech challenges would get overcome over a period of time. And the most important insight, Deepak, is that you and I, as consumers, are going to be on the mobile device, on connected TV devices, other connected gadgets, it's an expected pattern.
And Affle's role is not just to look at one channel or the other, but to say I'm looking at the consumer centricity of Affle's platform, we have a consumer platform. And the consumer platforms focused on all connected devices that the consumer will touch with, right? And maybe on CTV, there could be certain unique challenges, maybe on mobile, tomorrow, there will be other variable devices. And they will all go through their journey of consumer adoption overcoming challenges, but I don't see CTV and ad latency as an issue that we are disturbed by at the moment.
Okay. And there would be overlaps of customer also? I mean, for example, what we are targeting today on mobile-only installer, who else would be the same some overlap would be where we'll be targeting the same consumer on CTV channel as well?
Of course, yes. I mean the consumer is the same. You see, I mean, these are -- I mean if somebody is trying to drive a conversion with me, they would say that, "Hey, you've shown the ad on mobile, show it on the CTV also," right? I mean ideally, it should work like that to drive the conversion. So we have to look at it in a consumer-centric way versus one touch point at a time because that is not the strategic direction that we are taking. We are looking at it as a consumer-centric platform. Wherever the consumer goes, we have to map and provide that engagement point.
Ladies and gentlemen, we'll take this as the last question. I now hand over to the management for closing comments.
Thank you, everybody, for your very insightful questions. We look forward to the festive quarter -- I mean, the festivities have happened for Deepawali, and we've already seen good momentum, but rest of this quarter is ahead of us, and we look forward to connecting back in 2025, early 2025, and hopefully, with much stronger results and performance as guided earlier today. Thank you, and stay well.
Thank you. On behalf of AMBIT Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.