Since my post was flagged, it appears that it’s still not clear to many fellow VPers. Hence the below: -
While the numbers for both Route and Tanla have been talked about at length, here is my perspective on the industry trends and Route and Tanla’s postioning that should help clarify.
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There are too many players (globally) catering to the current set of use cases (overlapping offerings) and hence consolidation in terms of M&A is inevitable
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The core CPaaS offerings hitherto has largely been a commodity service and is transitioning into a value play along the lines of innovation – this is where the tailwind is seen. Contact centre automation is one such.
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The heavy competition in the commodity nature of offerings has led to aggregators such as Route, which in itself is a result of M&A
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Tanla realized that the global industry is getting squeezed much earlier in the game and hence opted for an ecosystem play (compete on value by collaborating with other players) and not being a mere aggregator (collaborate to compete on commodity)
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When a business competes on value, it has some moat and has both volume and value (price) as levers to protect margins whereas a commodity business has no moat and only has volume as lever. Thereby it is prone to competition and price disruptions – cheapest takes it all
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Tanla’s focus on capturing marketshare first in developing economies aligns well with the macro trends where Route is likely to face margin pressures. The overall strategy for any business, given the macro headwinds, should be to focus on developed economies for value (helps garner price appreciations) while focus on developing economies for volume (helps garner volume at current price if not more) keeping the low costs (personnel, infrastructure etc.) of the business in developing economies.
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It’s no surprise that the aggregator model of Route helps it maintain revenue growth (unfortunately at the cost of profitablility) while Tanla’s focus is to earn on every rupee sold.
This is in line with Tanla’s strategy of being asset light helping it command better ROCE and ROA -
Even from a risk perspective, Tanla is better positioned through an ecosystem play by not only being at the fore front of technological innovations (a major trigger for disruption) but also showing its conservativeness by distributing risk among many players who together serve the market.
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Without getting too much into the valuations, it appears that the market (including institutional players) do not have an understanding of the above and hence the lopsided valutions for Tanla and Route.
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As investors, while numbers need to be tracked on quarterly basis, 1 or 2 quarters here and there should not be seen as a major blip and is quite normal for any business, especially given the current macro headwinds. One needs to see the larger picture emanating from the concalls and the numbers to guage the performance of the business in the backdrop.
Hope this helps!
Regards,