DPDP Act And GDPR Rules Will Crush Ad-Tech Margins

Key Takeaways

• Mounting global privacy regulations and platform restrictions are undermining Affle 3i's data-driven ad business, threatening revenue, margin, and campaign effectiveness.
  
• Industry commoditization and rising consumer resistance are squeezing margins, making sustained revenue growth and profitability increasingly challenging for the mobile-focused company.
  
• Strategic investments in AI and automation, diversified global expansion, and disciplined financial management position Affle 3i for sustained growth, operational resilience, and long-term profitability.

Catalysts

Provides mobile advertisement services through information technology and software development services for mobiles in India and internationally.

• Expected tightening and fragmentation of global privacy regulations, including India's DPDP Act and recent enforcement under GDPR and CCPA, threatens to drastically limit Affle 3i's use of personal and behavioral data. This will undercut the targeting efficiency of the core ad-tech business and is likely to drive both revenue and margin contraction as customers demand privacy-compliant alternatives that Affle 3i may not be able to monetize as effectively.
  
• Consumer resistance to targeted advertising is intensifying, with widespread adoption of ad-blockers and new browser/device settings that reduce available ad inventory and lower campaign efficacy. This is set to directly curb the volume of conversions and corresponding CPCU growth, making the company's 20% organic revenue growth target increasingly unattainable over the long term.
  
• Accelerated moves by dominant walled garden platforms such as Google and Meta to restrict third-party access to audience data and inventory, particularly with the end of third-party cookies and the introduction of Apple's ATT/Google Privacy Sandbox, are creating existential risks for independent ad tech companies. This will erode Affle 3i's ability to attribute conversions and degrade campaign performance, pressuring both topline revenue and earnings growth.
  
• The mobile-centric revenue base leaves Affle 3i highly exposed to any negative shifts in mobile usage, operating system policy changes, or regulatory crackdowns on app-based tracking and advertising. Any such disruption could sharply impact both customer acquisition and retention, resulting in structural declines in revenue and persistent margin compression.
  
• Programmatic advertising is becoming increasingly commoditized due to automation and price-based competition, squeezing gross margins across the industry. Simultaneously, escalating R&D and marketing spend required to sustain competitive positioning against larger global platforms is likely to overwhelm any gains from operational efficiencies, ultimately reducing net margin and long-term profit growth.

Affle 3i Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Affle 3i compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Affle 3i's revenue will grow by 19.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 16.8% today to 19.5% in 3 years time.
• The bearish analysts expect earnings to reach ₹7.6 billion (and earnings per share of ₹54.15) by about July 2028, up from ₹3.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 36.0x on those 2028 earnings, down from 69.2x today. This future PE is greater than the current PE for the IN Media industry at 25.4x.
• Analysts expect the number of shares outstanding to grow by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.63%, as per the Simply Wall St company report.

Affle 3i Future Earnings Per Share Growth

Risks

• The company continues to deliver robust double-digit revenue and profit growth, with 23 percent year-on-year revenue growth and 28.5 percent PAT growth in FY 2025, and management has guided for sustainable 20 percent plus organic growth in FY 2026, indicating earnings and revenue momentum may continue.
  
• Affle 3i is demonstrating strong operational leverage through automation and AI, yielding margin expansion and improved cost efficiencies, which could result in higher EBITDA and net profit margins going forward despite scaling up the top line.
  
• The company's aggressive investment in AI, automation, and proprietary tech-including a deepening patent portfolio-serves as a technological moat, strengthens client trust, and positions Affle 3i to benefit from industry shifts toward privacy, fraud management, and complex digital marketing, all of which support long-term revenue and margin resilience.
  
• Expansion in developed and emerging markets, with ongoing penetration across multiple industry verticals and geographies, diversifies revenue streams and reduces concentration risk, thereby supporting stable to growing earnings and cash flows over the long term.
  
• Strong positive cash flow generation and disciplined working capital management, coupled with significant cash reserves poised for reinvestment or selective acquisitions, enhances the company's ability to fuel further growth and maintain or even improve financial strength, supporting sustained profitability.

Valuation

• The assumed bearish price target for Affle 3i is ₹1365.2, which represents two standard deviations below the consensus price target of ₹1833.18. This valuation is based on what can be assumed as the expectations of Affle 3i's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹2115.0, and the most bearish reporting a price target of just ₹1180.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be ₹39.0 billion, earnings will come to ₹7.6 billion, and it would be trading on a PE ratio of 36.0x, assuming you use a discount rate of 12.6%.
• Given the current share price of ₹1879.0, the bearish analyst price target of ₹1365.2 is 37.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.