Red, Red, Rediff

Mum's the word in Mumbai. (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 (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.

For related Foolishness:

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 539583, ~/Articles/ArticleHandler.aspx, 10/25/2016 10:14:40 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 58 minutes ago Sponsored by:
DOW 18,169.27 -53.76 -0.30%
S&P 500 2,143.16 -8.17 -0.38%
NASD 5,283.40 -26.43 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
REDF.DL $0.00 Down +0.00 +0.00% India CAPS Rating: *
BIDU $176.68 Down -4.18 -2.31%
Baidu CAPS Rating: *****
GOOGL $828.55 Down -7.19 -0.86%
Alphabet (A shares… CAPS Rating: *****
INFY $15.69 Down -0.30 -1.88%
Infosys Technologi… CAPS Rating: *****
WIT $9.69 Down -0.04 -0.41%
Wipro CAPS Rating: *****
YHOO $42.55 Down -0.04 -0.09%
Yahoo CAPS Rating: **