After strong growth for FY19, unearned revenue growth significantly moderated for 9M FY20. For 3Q FY20, unearned revenue declined 2% Y-o-Y.
JUST’s 3Q FY20 results missed our estimates, with top-line growth slumping to an all-time low of 3.8% Y-o-Y (down 3% Q-o-Q). With SMEs having limited growth visibility, advertising on JUST has taken a hit. Stringent control of both employee costs as well as ad spend led to EBITDA of `67.10 crore (up 21.4% Y-o-Y). PAT, at `62 crore, was up 8.2% Y-o-Y.
Going forward, we remain concerned about the impact of the macro slowdown as well as rapid expansion in non-metros on JUST’s realisations and margins. We believe a sustained revival of top-line growth remains imperative for JUST’s re-rating.
After strong growth for FY19, unearned revenue growth significantly moderated for 9M FY20. For 3Q FY20, unearned revenue declined 2% Y-o-Y. Growth in paid campaigns stood at 10.2% Y-o-Y (up 1.1% Q-o-Q).
However, revenue per paid campaign declined 5.8% Y-o-Y, a reflection of the weak macro as well as JUST’s challenge in improving realisations, as the bulk of the expansion happens in Tier II, III cities. We are currently forecasting an 11.2% revenue CAGR over FY19–22, with a 14.5% EPS CAGR over the same period.
If the slowdown persists, we see downside risk to our estimates. We believe the share of monthly contracts has continued to rise as JUST pursues volumes.
In our view, the increase in monthly payments exposes the company to higher customer churn. This also increases the need for a significant improvement in customer engagement. We also await commentary on JUST’s B2B progress, which is important given JUST has indicated that its B2B offering can help arrest a decline in realisations.
We remain wary about a structural recovery of JUST’s paid campaign additions, realisations, and inefficient capital allocation. We are maintaining an ‘underperform’ rating.