Doubling of share price is no evidence of pump and dump. You’re right in that the stock is pretty solid fundamentally with some strong tailwinds. It is also true the valuation is stretching from a traditional ratio. The major trigger I think is Netweb IPO which has pretty astronomical valuations based on fundamentals. So, in comparison E2E looks like a good bet.
As a long term investor, all this doesn’t really matter. It could go to 500 or back to <200 over the next week. Will stay invested.
I think the stock movement is related to overall bullish sentiment in the market coupled with Netweb IPO which listed at a much higher valuation. Many stocks have moved similarly over the past couple of months.
Result for Q1 is out. Drastic jump in net profit due to lower depreciation amortization cost. Would like to view detailed notes on the cause of drop.
This has resulted in PAT and EPS to jump drastically. Projected PE for FY 23-24 based on Q1 now sits at just 17. It would depend a lot on whether the lower depreciation amortization cost is a one off or a reset.
Unfortunately, company’s also been put in ESM stage 2 list. So, 2% band and periodic call auction. Unclear to me whether it’ll be traded one day a week or everyday but just in time slots. First investment entering ESM 2.
Interestingly, company m-cap was around 467 cr yesterday and ESM stage 2 can only be applied on cos below 500 cr m-cap.
So the difference will be added to the P & L statement in later quarters. PAT margin could remain high this year, and start falling as depreciation accumulates. I think for this business, we need to monitor growth in ARR, the operating margin and cash flows.
Disclosure - invested.
Heard the latest concal for the quarterly result. Number are per expectations. But I’ve said it before and I’ll reiterate. The communication of the management does not instill any confidence at all. Not really happy with them on this.
There are no commitments, no transparency in numbers. I got in queue to ask a couple of questions but someone else asked before me so I dropped out. But the answers were far from satisfactory.
Very obvious questions like:
As we are focused on AI/ML what part of our capex present and future will for it? - No clear answer. On being pressed, a couple of hundred crores. 100/200/300/500 crores? Over what time frame?
The partnership with NVIDIA. Is it exclusive? Does it give us expedited access to hardware? Better pricing? - No clear answers. Kudos to the person who really drilled into this.
What is our infrastructure capacity utilization like? What is the projection for expansion and usage in mid-long term? No clear answers.
What’s their USP against hyperscalers? Lots of words, little meaning. - I actually think E2E doesn’t even compete with hyperscalers. Hyperscalers target EVERYONE from 5$/month spenders as well as 500million/month enterprise clients. E2E, as has been stated by the CEO himself, targets mid-spenders. So, they are more in line with Linode and DigitalOcean in competition who target small to mid size clients rather than AWS, G-Cloud or Azure.
The management says the growth can be lumpy (in the call) but stake all their performance on the Recurring Revenue numbers. So, what will it be? lumpy or stable, progressive recurring revenue?
I couldn’t believe when they said there aren’t clear guidelines for what constitutes churn within the clients and they don’t track that or the reason for the churn as well. They don’t track the usage of hardware for AI/ML as it’s not straightforward. That doesn’t make sense. All communication, PR and new features are geared towards AI/ML workflows and we don’t track usage, revenues, churn for that? On what basis are these decisions made then? They also go on to say the products are build on feedback (as part of their USP answer). If you don’t know why clients leave your platform (churn), how to do you build stuff via feedback?
I still hold the stock and have made good returns for far. But this isn’t a garage startup just winging it as they go. I think reaching a 500 crore m-cap, the company should lay out quantitatively where they plan to reach. Not just in revenues but in capex, opex, margins, etc. Layout the plan for the next 3-5 years and investors should be able to hold the management to that.
This would brand the management as transparent.
EDIT: If the management is reading this, I am a developer as well and I am very happy with the features being rolled out. if mapped 1:1 with Linode and DigitalOcean, I think we are at par or exceed their features. But please treat investors are stakeholders and not liabilities.
One point I would like to mention here that, regarding the growth prospects, the management guided for “30 to 40 percent growth” in the coming 3,4 years. But, they also mentioned that it would be “lumpy”, given that they are a small company.
Yeah. I heard it too. But it’s like saying in a coin toss, I pick heads but if tails comes up, I pick tails. If they deliver returns, their estimates were right. If not, well, they did say “lumpy”. It’s because they’re not confident of the stickiness of their clients. The reason for that being they aren’t applying resources to analyze the churn of the clients and reasons behind it.
In another way, here’s a subjective question: Should a 500cr company know what they’re going to make in topline in the next 12-24 months? Does E2E know?
Yes , agreed. As far as my sense goes hearing what the MD had to say, all they mean by 30-40 % growth is that, they are sort of trying to project the runway given the kind of demand scenario brewing up in this space. Also, regarding the “lumpiness” they are sort of trying to say that the terminal growth in that mentioned period should be around 30-40%, but there may be some deviation here and there.
With reference to the con call and points raised here.
This company is tiny at this point in time, but a good acquisition target at some point provided they keep scaling. Given their market penetration, growth should be possible over foreseeable future.
H100 now available with E2E.
Spoiler’s Alert: I’m not getting into cloud wars or diving deep into tech capabilities of various cloud players across globe if you are a techie pls ignore my post and just run! It’s just doesn’t make sense comparing pygmy marmoset (smallest monkey) with a gorilla like AWS in terms of capabilities or services imo. Actually, I’m quite surprised to see many techies out there taking a direct comparison with established biggies like AWS or Azure etc. Everybody knows what AWS or Azure capabilities are. It’s a dead end discussion. 
Then why I’m writing this without diving deep into tech aspect of the company?
Ans: There are so many folks out there they want to know about the company at high level without going into nitty-gritty of “Tech” side much so that they can take a portfolio level call. As cloud is also a mega trend also so much has been discussed already regarding “tech” capabilities there nothing special that could add here.
Let me present a slightly different view! I reserve the right to be wrong! 
What they do :
It offers public cloud and private cloud services. Infrastructure as service model (iaas). So, you can build and launch your machine learning/AI/ all types of complex algo’s applications on the most high-value (subjective!) infrastructure cloud on hourly basis, committed time basis, or spot basis. Which includes all types of services like web, mobile or an enterprise. They are currently offering Compute, Load Balancers, Object Storage, Block Storage, Kubernetes and trying to provide holistic cloud services to any company. Don’t read too much into their current offerings and start comparing them with biggies like AWS or Azure straight away, you will be disappointed in no time.
//Small tip from my side: when you are analyzing or studying a small company don’t start with a direct product to product comparison. Always look for the differentiation in strategy and look whether it has identified the customer pain points or not? how effectively it is addressing those pain points. Not everyone is as blessed as Mukesh Ambani to make your services free to eliminate the competition overnight.//
To those who don’t know what is self-service public cloud? In simple terms, a customer can launch applications and provision storage without the involvement of the service provider. The request process and fulfillment are all automated.
What is asset of E2E : Just chips and it’s uninterrupted service/security capability.
How ?
The cloud provider manages a portion of your business which is going to be the hardware portion. The cloud provider will manage the servers, storage, virtualization, and the networking portion. E2E offers the services to their customers which requires to run ML/AI algo’s (To put into simple terms Zomoto offers your next recommended food item or Nyka offers next recommended lipstick etc right! that’s nothing but a work of a ML/AI algo’s that runs on cloud infra offered by co’s like E2E) Mind that E2E is not serving big clients like Zomato or Nyka or any other big consumer centric platform companies. I just used their names for illustration purpose.
Here is the general split between cloud provider (ex: AWS or E2E) and client (ex: Netflix or Zomato etc)
E2E part : The hardware services which includes.
Storage, servers, networking, virtualization etc
The client part: (Netflix or Zomato): web or mobile any enterprise not limited to these.
Application, data, OS, middleware, runtime etc.
Why this company has the right to win :
It’s differentiated clientele strategy : if you look at their ticket size (the avg billing rate they charge to their client is very low compared to AWS or Azure) why? E2E targets SME’s or MSEM’s or startups and also their product strategy addressing needs of “AI, ML and Deep Leaning workloads.” for small players. It’s more of how you are packaging your services and make it as a “complete product” and sell it. Not going into head on with biggies. No point in doing that either, you lose!
“E2E’s vision is simple. There is space for an infrastructure company in India, besides the hyperscalers which are all MNCs by the way. They wanted to fill this gap and establish themselves as a hyperscaler from India”.
What do they mean by that : client can do all this work by himself, but if you are very small company or start up type imagine the cost of setting up an inhouse (chips and server) set-up and cost of running it. This is the gap they are talking about. When you are small compnay in size your entire money must go to product development bucket or sales/marketing bucket not to this type of infrastructure bucket right! This is exactly the gap is.
Okay, that leads to the next question why should a client go to E2E not to AWS or Azure?
We normally get carried away by looking at big players AWS, Azure etc and ignore small players. There are numerous small players in US which caters to different industries like agricultural, marine, food processing, medical, disaster recovery, disaster recovery. In that context there is a space for all sizes (small, medium, and big). It’s not the time to assess the moat, as a matter of fact never try to find moat in small companies always look at their differentiated strategy and execution (imo). E2E is ticking two boxes perfectly so far. How are they doing it? you can study the concal. No point in repeating it. But I would say one thing just google how many cloud service companies are making more than 250milion in rev in US, you will be amazed!
Different example but same context : Criteria to become a RateGain client is that the hotel should have at least 50 rooms and a $100 Average Daily Rate (ADR). Rategain doesn’t focus much on the smaller hotels or the bottom of the pyramid. Because the small hotel can’t afford Rategain product cost at same time Rategain can’t improve the small hotel sales effectively. What is this telling you? There is a gap here! There is space for a small player here!
E2E has identified similar type of gap in cloud platform service offerings and executing it nicely (in fact killing it!). To be honest more credit should be given to industry growth not to a particular player imo.
The difference is of course unlike a SW product (Rategain), E2E is into physical infrastructure means huge capital requirement is always a need. (look at their fixed assets, it’s more or less directly proportional to their sales number)
You can optimize the services and size but to increase sales you must increase your assets just like typical manufacturing plant. It’s not a SW product type “build once, sell million copies”. So, the word CAPEX will ring in your ears every time you hear their concal better get adjust to that!
Perhaps the most important questions are how long this growth/momentum can continue for E2E?
Few Ans:
Before concluding my post just want to say few points about “Tech”
In tech business, anybody can displace anybody. The greatest Irony that we all gone witness in future is by using Ambanis’s Jio’s cheap data rate some smart guys like (Sahil, biased 
) will build a tech business and beat Ambani in wealth creation. That’s the power of tech. Is Ambani is not aware of this? He knows it but can’t do anything about it. 
Has trading been stopped in E2E? There are orders on upper circuit and there are a few sellers. But no trade has been executed today.
No. It’s been included in ESM stage 2. Due to this it has periodic call auction. It means it is traded in sessions lasting 45 minutes. You should see update at 10:23am.
You don’t need skilled manpower for IaaS company. Its like renting my infrastructure (GPUs here), for your computing needs.
The one of the major anti thesis for the company is Depreciation. Not sure on the depreciation rate of GPUs, which is the major infrastructure for this company. The company is accumulating depreciation at 15cr per year (averaged for last 4 years), where as the total average computer assets 52cr (last 4 years). See the gross block write off in year 2021.
So, it is interesting to know the GPU depreciation rate from the experts, as this company needs continuous maintenance or replacement CAPEX.
Just Adding my points to the advantage of e2e networks being a customer of the same company. We are using thier services for non critical applications due to thier cost.
Not all applications need to run on AWS with 24x7 availablity, some applications can work with some downtime.
Now you may ask as regards to local competition like CtrlS and ESDS etc, their application is a breeze, with ready made nodes available and no downtime issues till now.
I believe as many start up companies mature , there will be pressure to reduce the IT infra costs, thats where comapnies like E2E Networks will excel on migration of some applications to local cloud.
For eg we are doing our predictive data analytics on thier nodes as it is cheaper to do so than on AWS.
Who are its competitors
Whether PACE E COMMERCE is also in similar field.
Members pls suggest
As already mentioned by some members in the thread the main competitors are cloud providers like Digital Ocean, Vultur and Linode who provide cloud solutions similar to E2E Networks with comparable pricing.
Thanks but these are not listed I believe
