January 8, 2013 / 4:30 PM / 5 years ago

Israel's Babylon eyes revenue boost from free translations

* Advertising accounts for 94 pct of revenue

* Seeking Nasdaq share listing this year

* Aims to raise $115 mln from listing

By Steven Scheer

JERUSALEM, Jan 8 (Reuters) - Translation software provider Babylon expects continued strong revenue growth this year thanks to increased advertising income on the back of its plan to offer its latest product free of charge.

The Israeli company decided in 2011 to change its business model from a paid-for service and saw revenue in the first nine months of 2012 leap to $121 million, nearly double the $62 million achieved in the whole of 2011.

Net profit in the nine months was $17.1 million, against a full-year profit of $7.8 million in 2011.

Babylon says that 94 percent of its revenue now comes from advertising and credits some of its recent success to the internet becoming more accessible in the developing world.

"We will continue with this growth along with (growth in) advertising revenue," Chief Executive Alon Carmeli told Reuters ahead of next week's launch of its new Babylon 10 translation software.

Babylon, which started in 1997, provides translation of words, phrases, documents and web pages in 77 languages in more than 190 countries. The company says that it translate more than 100 million terms every day.

Babylon 10 is a downloadable product that translates as well as provides word definitions while being able to hear voice pronunciation.

The company's vice president of sales and marketing, Liat Sade-Sternberg, said that the Arab Spring has also played a key role in the company's success, increasing people's thirst for knowledge and the need for foreign online content.

Noting that Babylon is ranked among the top 10 websites in Sudan, Tunisia and Libya, she added: "Only 27 percent of people online are native English speakers, but 55 percent of the content online is in English, making translation programmes like Babylon 10 invaluable to the vast majority of people worldwide."

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Until now, Babylon's products have largely been priced at about $100, but Carmeli believes that it can expand its user base by offering Babylon 10 free of charge, though customers will still have to pay for some premium features.

"Online advertising is so efficient that it can serve as an alternative currency," Carmeli said.

Babylon's products are most popular with users in Brazil, Mexico, Europe, Asia and with non-native English speakers in the United States, Carmeli added.

Most translations are to and from English, followed by Spanish, French, German and Portuguese.

"The challenge Babylon has had for many years is how to deal with markets and countries that suffer from a low penetration rate for credit cards and PayPal," he said.

Babylon competes to an extent with Google, which also has a service that translates words, phrases and websites.

Among the Israeli company's mobile apps is Babylon Touch, which allows users to point a camera at signs or menus and receive instant translations.

In November, Babylon filed for an initial public offering (IPO) of its shares on Nasdaq, with the aim of raising $115 million early this year.

Carmeli declined to comment on the IPO but in a filing to the U.S. Securities and Exchange Commission, Babylon said that it may use some of the proceeds to make acquisitions or investments in complementary companies.

Babylon trades on the Tel Aviv Stock Exchange at a market value of about $300 million, having risen about 15 percent so far this year after a 134 percent jump in 2012.

The company has been paying between 50 percent and 100 percent of its profit as dividends, but said that it does not intend to pay dividends for the foreseeable future and would retain future earnings to finance its expansion.

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