Vernacular Apps Will Drive User Engagement In Underpenetrated Regions

Key Takeaways

• Launching a vernacular-based app and updating community apps could boost user engagement and drive revenue in untapped regions.
  
• Cost optimization and personal services growth could improve net margins and future earnings substantially.
  
• Matrimony.com faces challenges with revenue decline, competitive pressure, and high costs impacting margins, despite marketing efforts and initiatives to boost growth.

Catalysts

A consumer internet company, provides online matchmaking services on internet and mobile platforms in India and internationally.

• Matrimony.com is planning to launch a vernacular-based app in multiple languages, which could increase user engagement and potentially drive higher revenue in underpenetrated regions. This initiative is expected to impact revenue positively.
  
• The company plans to roll out a new version of its community matrimony apps. This update could improve user experience and engagement metrics, therefore, potentially increasing subscription rates and boosting earnings.
  
• Matrimony.com is experimenting with a new pricing strategy and additional monetization plans, which, if successful, could enhance average transaction value and lead to higher revenue and earnings in the future.
  
• The company is working on optimizing its costs, which is expected to improve margins once the revenue starts to revive. This focus on cost management could lead to improved net margins.
  
• Matrimony.com is seeing growth in personal services, which is projected to have double-digit growth. As personal services generally carry higher margins, this could lead to an improvement in overall net margins and earnings.

Matrimony.com Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Matrimony.com's revenue will grow by 9.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.5% today to 12.2% in 3 years time.
• Analysts expect earnings to reach ₹755.6 million (and earnings per share of ₹31.03) by about April 2028, up from ₹488.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.3x on those 2028 earnings, up from 22.1x today. This future PE is greater than the current PE for the IN Interactive Media and Services industry at 22.2x.
• Analysts expect the number of shares outstanding to decline by 1.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.66%, as per the Simply Wall St company report.

Matrimony.com Future Earnings Per Share Growth

Risks

• A decline in industry-wide search queries and member registrations, as described in a Google report, has resulted in decreased revenues, affecting Matrimony.com's monetization plans. This broad industry trend presents a risk to future revenue growth.
  
• Matrimony.com has experienced muted billing growth due to a drop in member registrations and market conditions, with Q3 revenue dropping 5.1% year-on-year, impacting the company's earnings trajectory.
  
• Increased competition, which seems to have sustained growth even in challenging times, might pressure Matrimony.com to invest heavily in advertising to maintain market share, affecting net margins due to elevated costs.
  
• Despite marketing efforts like the Great India Matchmaking Fest campaign, Matrimony.com observed a drop in billing and revenue, indicating potential execution risks in their market strategy, leading to subdued financial performance.
  
• Ongoing and new initiatives, which include vernacular app launches and community matrimony apps, along with continued spending on marketing, could elevate operating costs without guaranteed commensurate growth in revenue, thereby affecting profit margins negatively.

Valuation

• The analysts have a consensus price target of ₹560.0 for Matrimony.com based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹6.2 billion, earnings will come to ₹755.6 million, and it would be trading on a PE ratio of 22.3x, assuming you use a discount rate of 14.7%.
• Given the current share price of ₹500.9, the analyst price target of ₹560.0 is 10.6% higher.
• 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.