Also, unlike traditional businesses, platform companies don’t experience decreased efficiency as they grow. In fact, they thrive on growth.
As more participants join the platform, the stronger the network becomes, leading to a virtuous cycle.
To ignite this virtuous cycle, most new platform businesses heavily spend on advertising and marketing in their initial days to attract participants.
Let’s take a look at the top five platform stocks in India that are heavily spending on their advertising budget.
We have filtered these stocks using the advertising expense as a percentage of their total revenue.
#1 Matrimony.com
Matrimony.com offers online matchmaking services on internet and mobile platforms. The company provides services to users in India and the Indian diaspora through its websites, mobile sites, and mobile apps. Its websites include BharatMatrimony, Community Matrimony, Assisted Matrimony, and EliteMatrimony.
The company’s three-year sales and net profit compound annual growth rate (CAGR) has been anaemic at 8% and 7%, respectively.
The trend of ad spends by Matrimony.com has been increasing significantly over the past few years, primarily driven by intense competition in the online matchmaking market in India.
All major players, including Shaadi.com and Jeevansathi.com, have significantly ramped up their advertising budgets.
This “arms race” in ad spending has created pressure for Matrimony.com to maintain its market share and visibility, even if it means spending more than what might be considered optimal.
Despite the massive increase in advertising expenditure across the industry, the overall growth of the online matchmaking market hasn’t expanded at a commensurate pace.
This suggests that the high ad spend is primarily focused on competing for existing market share rather than significantly expanding the pie.
Television advertising remains the dominant channel for Matrimony.com, accounting for around 70% of the ad spend. However, the company is gradually increasing its allocation towards digital channels, particularly due to the increasing usage of smartphones and social media platforms by younger generations.
Matrimony.com in its various earnings calls acknowledged that the current level of ad spending is higher than ideal and expects to optimize it in the future if the competitive intensity subsides.
However, as long as competitors continue to advertise aggressively, Matrimony.com feels compelled to maintain a similar level of spending to protect its market share and brand visibility.
Here’s how the stock price has performed in the past 1 year.
#2 PB Fintech
PB Fintech, also known as Policybazaar, operates through distinct brands, Policybazaar and Paisabazaar.
Policybazaar is India’s leading online marketplace for insurance solutions, while Paisabazaar is a leading online lending marketplace.
The company has an asset-light capital strategy, as they don’t underwrite any insurance or retain any credit risk.
PB Fintech earns revenue from insurance commissions and additional services like telemarketing, account management, premium collection, and outsourcing services.
In FY24 the company’s sales grew 34% year on year (YoY) to reach ₹3,450 crore and it posted profit for the first time in its history at ₹64 crore.
Here’s how the stock price has performed in the past 1 year.
PB Fintech spent 26% of its revenues on advertising in FY24. This high spending is driven by its prioritization of growth over short-term profits.
The management views advertising as an investment that drives premium growth and strengthens their brand in the long run.
They believe in capturing the market share while it’s still growing at a rapid pace.
The company’s advertising spend is primarily directed to driving new premium growth, particularly in health and life insurance where they believe they are addressing a critical consumer need.
The company acknowledges that its advertising spend is very high but justifies it by stating that the return on investment from advertising is strong.
Its management sees a 35-40% yield from its overall brand spend.
The management has also highlighted that their brand costs are increasing at roughly half the rate of premium growth.
#3 Le Travenues Technology (ixigo)
Le Travenues Technology (ixigo) is one of the leading online travel agencies and travel utility platform vm in India.
The company provides a comprehensive travel booking platform that caters to the needs of the “next billion users”. It offers a wide range of services, including flight, train, and bus ticket bookings, hotel reservations, and ancillary services such as travel insurance.
The company leverages technology and artificial intelligence (AI) to enhance the customer experience and drive growth.
In FY24 the company’s sales grew 30% YoY to ₹650 crore and its net profit more than doubled to ₹73 crore from last year’s ₹23 crore.
Here’s how the stock price has performed since its listing.
The company spent 23% of its revenues on advertising in FY24 which is quite high but understandable.
Given the increasing competition in online travel agencies and the significant growth potential in this sector, there has been a rise in both domestic platforms and international players establishing their presence in India.
ixigo’s management has stated that the increase in branding and advertising spend is a deliberate strategy to grow its unaided brand recall and build trust with next billion users.
They recognize that marketing investments are crucial for long-term brand building in the consumer brand space.
The company is leveraging its extensive user base data and analytics capabilities to make more selective and targeted decisions about branding and marketing expenses.
During its earnings call, the management clarified they allocate their advertising budget based on internal data points rather than solely relying on seasonal trends. So, the advertising spending may not strictly align with the seasonality of the travel industry.
ixigo employs a mix of online and offline marketing channels. The company’s management emphasizes the need to invest in customer acquisition, especially in the bus and flight segments.
It’s willing to prioritize growth, even if it means slightly lower contribution margins in the short term.
It will be interesting to see how this strategy pans out for the company.
#4 Swiggy
Swiggy is an Indian consumer-first technology company offering a diverse range of services through its unified app, “Swiggy”.
The company’s offerings include food delivery, grocery and household item delivery (Instamart), restaurant reservations (Dineout), event bookings (SteppinOut), product pick-up/drop-off services (Genie), and other hyperlocal commerce activities (Swiggy Minis).
The company’s recent financial performance is marked by both growth and losses.
In FY24 the company’s sales grew 36% YoY to ₹11,250 crore and its losses narrowed to ₹2,350 crore compared to ₹4,180 crore last year.
Here’s how the stock price has performed since its listing.
Despite negative cash flows from operations, Swiggy’s revenue has shown consistent growth. The company’s focus on expanding its services, particularly quick commerce, has contributed to this growth.
However, this expansion has also led to higher expenses, including advertising and sales promotions, delivery costs, and employee benefits.
It spent 16% of its revenue on advertising and sales promotions.
Swiggy’s high advertising spend as a percentage of revenue is attributed to its strategic focus on expanding its user base, enhancing brand awareness, and driving user engagement.
Due to this continued focus on creating a brand, Swiggy is the most valuable brand in the consumer technology & services platforms category. It’s also among the top 25 most valuable brands in India overall, according to the Kantar BrandZ most valuable Indian brands report 2024.
As Swiggy expands its services geographically and into new use cases, it needs to make customers aware of its platform and attract new users, restaurant partners, merchant partners, and delivery partners.
The company’s high advertising spend is also due to the competitive nature of the market in India. To stand out in a crowded market, Swiggy needs to invest heavily in advertising and sales promotion.
While Swiggy’s advertising spend is high, it has been decreasing as a percentage of total sales. Swiggy expects this trend to continue as its brand awareness increases and it generates more orders from existing users and referrals.
#5 Easy Trip Planners
Easy Trip Planners is one of India’s leading online travel agencies (OTA) operating under its brand EaseMyTrip.
The company provides end-to-end travel solutions, including air tickets, hotels and holiday packages, rail tickets, bus tickets, and other services.
In FY24, the company’s sales grew 12% YoY compared to 84% the year before, while net profit declined to ₹120 crore compared to ₹150 crore in FY23.
Here’s how the stock price has performed in the past 1 year.
One of the company’s key strategies is to not charge convenience fees, setting it apart from other OTAs in the market.
The company has been actively acquiring companies to expand its offerings and market reach.
Some of its recent acquisitions include Spree Hotels, YoloBus, Guideline Travels, TripShope, and Dook Travels. It has also made strategic investments in companies like Eco Hotels and Resorts and E Trav Tech.
EaseMyTrip is expanding its network of franchise stores across India to enhance its offline presence and cater to customers who prefer offline bookings, particularly for holiday packages.
EaseMyTrip’s advertising spend, while seemingly high in certain quarters, is considered low compared to the industry according to company management.
The company prides itself on maintaining a lean cost structure, with advertising expenses consistently lower than its peers. In FY24, marketing spend as a percentage of gross booking revenues (GBR) was 1%.
This approach has contributed to EaseMyTrip’s consistent profitability since its inception.
The majority of EaseMyTrip’s advertising budget is allocated to performance marketing, which involves targeted advertising on platforms like Google and Facebook.
This approach ensures that advertising spend is directly linked to measurable results like website visits and bookings.
The company’s management has repeatedly emphasized its commitment to profitable growth.
They aim to strike a balance between investing in marketing to drive growth and controlling expenses to maintain profitability.
Conclusion
Investing in platform businesses presents a unique opportunity with high reward potential, but it’s crucial to proceed with caution.
While platforms like Amazon have demonstrated remarkable growth and made remarkable money for their investors, the long-term survival of any platform is uncertain.
The charm of high return on capital (ROCE) combined with rapid growth is undeniable, especially with the potential for monopoly-like market dominance.
However, investors should prioritize platforms demonstrating predictable cash flows and robust unit economics, indicating a higher likelihood of survival.
It’s also essential to consider corporate governance and always remember that investments in platforms typically yield back-ended returns, requiring patience as initial expenses related to network effects play out.
Happy investing!
Disclaimer: This article is for education purposes only. It is not a recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
