is Ripe

July 17, 2007 10:41 am

As Charles Dickens said: “Ain’t I volatile?”. (REDF) has been as moving with a vengeance over the past few weeks. Starting from an amazing earnings report in May, and then following the usual course of buyout and merger rumors, it has moved from a consolidation range ($16-19) to $27 during July 2007. Why?

First of all, it is once again about eyeballs. Rediff has 55 million registered users and who knows how many more “casual users”. The main appeal for investors is that this is the Baidu (BIDU) or the Google (GOOG) or even a Yahoo! (YHOO) for India. Now, the main difference seen for this company as compared to its Chinese counterpart (BIDU) is twofold:

1) Baidu stands somewhat alone from other search engines/portals as it does not have the competition from other major search engines. India has Google and Yahoo! as options for web surfers.

2) There are only 10 major advertisers on the Rediff sites. These make up the majority of earnings. This is a good and bad.

– Bad as every one counts and a drop by one could mean a loss of important income
– Good because there is a huge amount of room for growth.



The company recently reported revenue approaching $30 million, which is not a whole heck of a lot considering the potential. Since only less than 2% of the population of India has online computer access, this is developing into a very compelling story. Remember, soon the adoption rate for the country will start to blossom.

The reason why it moved with such power last week was due to the buyout rumors. It makes sense for a company like Yahoo!, in an attempt to get itself on track, to buy this company in its entirety. Even at inflated prices of $30 or more, the fact is that it will immediately have advertisers showing off their products and services to millions of users. In addition, the income will be accretive as there is a great overlap of services.

Will Yahoo! or someone else buy the company? According to a recent article in the Hindustan Times it looks good. One comment regarding this particular source that may shed light (or does it?); the Rediff CEO Ajit Balakrishnan said in a recent article, “It’s completely untrue and this report was written without verifying with us if the speculation has any basis; there are no discussions of this nature going on. It is clearly an instance of a reporter’s over-active imagination on a slow news day and his editor not bothering to ask him if he has checked with the company concerned.”

It seems somewhat suspect that the company’s CEO continually and vehemently denies any discussion of takeover or merger. Why? If I were stuck between two behemoths, I would assuredly look to align with one.

The stock is rated a strong buy by analysts even though it has a current P/E approaching 75 and a forward of about 55. The growth potential is why the stock is showing its strength though. We need to look ahead to what is in store for the future with this one.

There is a real possibility that someone will step up to this plate. We are buying into the recent moves as it appears that even if Rediff is not sold, there is still plenty of room for growth here.


Clients fo Horowitz & Company are LONG as of this writing.

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