Why Indian Internet Companies Lag Behind Global Peers

India's internet industry has very few success stories as companies hold on to the subscription and transaction model while global peers dominate the web and mobile internet platforms.

This model, with its focus on product and quality, helps India's homegrown companies sustain, an analysis of 30 global internet businesses by Ambit Capital shows. It gives these businesses higher entry barriers, it makes the segment potentially unattractive to new entrants, the brokerage said in a report. This is mainly due to higher customer acquisition costs and smaller addressable markets.

The few successful companies that exist in India are mainly in the business-to-consumer space, it said.

Chinese Players Trump Indian Peers

Where India lost due to the subscription and transaction model, Chinese companies took lead on the 4G revolution, with internet penetration improving significantly (38 percent from 11 percent) during 2006-2011.

With bandwidth availability exploding fivefold between 2011 and 2016, Chinese mobile internet users were able to use a host of bandwidth-intensive platforms.

Here's Ambit Capital's views on major players in India in the segment:

Info Edge India

• Rating: Buy, with 12-month target price of Rs 1,627.
• Company's success across jobs and real estate is unprecedented.
• Core recruitment business faces negligible disruption risk
• Company to invest in other classified categories.
• Zomato's success and online shift of ad-spend from print media to drive web verticals.
• Values Info Edge at 50 times estimated FY19 earnings in light of growth.

On Just Dial

• Rating: Sell, with 12-month target price of Rs 320.
• Inability to adapt to mobile internet is apparent in slowing revenues.
• Google looms large affecting company's ability to attract traffic.
• Merchant sign-on costs likely to keep rising.
• Inability to attract professionals question company's ability to pick a vertical.
• Frittered away monopolistic voice search by persistent failures.

On Matrimony.com

• Not Rated.
• Dominant position in matchmaking should help improve margins.
• High pricing restricts addressable market and sustainable growth.
• Has been able to cope with competition from serious dating players.
• Richly valued at 48 times of FY17 earnings.