Affle share price has zoomed 45% since the middle of June to now trade at Rs 1,351 per share, but the rally might not be over yet, according to analysts at Goldman Sachs. Initiating the coverage of the stock, analysts at Goldman Sachs have given a ‘buy’ call with a target price of Rs 1,495 apiece, suggesting another 10% up-move. “Affle operates in a global large TAM which is expected by eMarketer to grow at 30% over 2021-25 driven by secular drivers of rising internet/ smartphone/e-commerce penetration, more data traffic across EMs and more time spent by digital consumers on mobile,” Goldman Sachs said in a report. 

Strong potential in digital ad space

Digital Ad spends are expected to grow at a CAGR of 12.4%, implying total spending of $785bn by 2025, helping companies such as Affle. Affle competes with global giants such as Alphabet (Google), Meta, Amazon, Alibaba, and Microsoft among others in this space. As per e-Marketer data, digital ad space could see its total addressable market reach a staggering $185 billion by 2025.

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Goldman Sachs noted that Affle is present across the digital ad value chain. “Affle provides services across the value chain in digital advertising, spanning the areas of DMP, DSP/SSP, fraud detection and advertisement network,” analysts said. “The digital advertising value chain constitutes publishers, advertisers, and multiple advertising technology companies. The main objective is for advertisers to publish their Ad across platforms of publishers,” they added. 

Drivers of strong growth

Among the reasons that are expected to drive revenue growth for Affle, is the increasing penetration of smartphones. “India, the most prominent and largest by revenue for Affle (35% of revenues as of FY22) is expected to see its smartphone penetration increase from 35% currently to 41% by 2025,” this move is expected to complement Affle’s revenue growth. Further, the rise in the internet in the country is also seen as a driver. 

“Higher amount of time spent on browsing on mobile applications coupled with attractive data plans in some of the key geographies (like India and SEA) in which Affle operates. This is leading to a higher amount of data traffic per smartphone per month,” Goldman Sachs said. In addition to these, the country’s GDP growth is the biggest cyclical growth driver for digital ad spending.

Valuations attractive

Goldman Sachs noted that valuations are now attractive after the recent correction in stock markets. “For Digital Advertising players including Affle, Trade Desk, Facebook and Google; we have seen multiples de-rating over the last 6-9 months. This could be due to various factors, among which we consider the most prominent are higher risk-free rates with 10-yr bond yields moving up both in the US and India, slowdown in user growth (as seen at Facebook, for example) and increased data privacy regulations,” they added.

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Goldman Sachs values Affle on 50:50 P/E:DCF as they believe this captures both the nearer term and the longer term, similar to their staffing coverage. With this analysts have arrived at a target price of Rs 1,495 per share. 

The downside target price or a bear-case scenario has been pinned at Rs 778 per share while upside target or bull-case scenario may see the stock rise to Rs 1,974 per share.