Red, Red, Rediff

Mum's the word in Mumbai.

Rediff.com (Nasdaq: REDF  ) may have excited investors a few quarters ago with notions of scintillating growth in India, but the former dot-com darling is struggling to grow in the world's second-most-populous country.

This morning's fiscal second-quarter report is uninspiring. Revenue rose a mere 18% to $7.9 million. Earnings of $0.03 per ADS fell short of the $0.05 per ADS it generated a year earlier. The results came in slightly below Wall Street expectations, and that was after hosing down hope back in August, after a similarly lackluster first-quarter showing.

It doesn't get any prettier if you dig deeper into the numbers. Yes, forgive the company and its slower-growing U.S. publishing business, since its Indian portal -- which now accounts for 73% of the revenue mix -- grew at a healthier 22% clip. Gross margins improved, as expected, in the scalable online space. Unfortunately, operating expenses expanded by 43%, or a still-troublesome 29% uptick if you back out depreciation and amortization costs. Investors shouldn't put up with operating expenses growing more quickly than the top line, especially when revenue growth is decelerating.  

The stock had been propped up earlier this year through buyout chatter -- when New Delhi's Hindustan Times reported that the company was receiving acquisitive interest from companies like Yahoo! (Nasdaq: YHOO  ) and Google (Nasdaq: GOOG  ) -- and dreams of healthy growth. The company is 0 for 2 on those shattered catalysts.  

It's a shame, because I was starting to warm up to the Rediff story. Many investors see India as a hotbed of outsourcing, with companies like Infosys (Nasdaq: INFY  ) and Wipro (NYSE: WIT  ) on the forefront. I see more. As the country's economy improves, Internet usage should improve exponentially. This should create opportunities for companies like Rediff and access provider Sify (Nasdaq: SIFY  ) .

It hasn't happened. When it comes to exotic dot-com plays overseas, Rediff is no Baidu.com (Nasdaq: BIDU  ) . Even though both companies are top draws in populous nations, Baidu is growing five times faster. Operating overhead isn't lapping growth at Baidu.

I'm not throwing in the towel just yet on Rediff, but I'm also in no rush to dive in. Until the company can get growing at a respectable rate again, a slow-footed company that will clock in with less than $35 million this year is not worth the nearly $500 million market cap that Rediff commands at the moment.

Prove me wrong, Rediff. Make me happy again.

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