The second option is better. We have to look at the source of revenue. Imagine being a credit/debit card issuer who is paying the lounge bill. I have a budget for sale & promotion/marketing expenses. I may have a set %age of revenue or profit to give away under this head. Let’s say i budget 5/100 as my budget. Now suddenly i have to give 8/100 (with 60% growth). How do i budget this when my income may be growing at say 20-25% ?
So if my income becomes 120 then it’s easy to budget 6/120. But budgeting for 8/120 is a bigger ask and goes out of my budget. I may not care about whether dreamfolks makes 15 or 11 % gross margins as long as it’s my budget and inline with my core business growth. But if year on year my business is growing only at 20-25% how can I afford/budget growth in this payout at 60% ? It’s un realistic. So pushback is natural, first in terms of margins, then in terms of other means of restricting this growth by offering to only higher spend customers etc… but i’ll do everything to keep it in sync with my business growth.
What has happened in this qtr is bad for Dreamfolks from one permanent damage angle. In long run, the dreamfolks business simply can’t grow at double the rate than that of it’s sponsors. But the margin damage will take a lot to reverse, because now sponsor has tasted blood and knows that dreamfolks need not make 15% gross margins to make good money.
But having said all this, i think at some price, market will realize that this is a good asset light business for a 25% kind of earning growth in longer term. The business model is not bust, just some corrections in the expectations.
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