Meesho, the low price e-commerce platform, managed to turn profitable on a profit after tax (PAT) basis in July 2023, helped by lower customer acquisition costs (CACs), better monetisation efforts, among others, the company’s CFO Dhiresh Bansal told Moneycontrol in an interview.
Since the beginning of this year, Meesho has undertaken several measures to cut costs and better its financial health. In its second round of layoffs, it let go of 251 employees from the company’s core unit. Meesho had even brought down its cloud expenses by around 50 percent, Moneycontrol had reported earlier, which may have propelled the Bengaluru-based startup further in the direction of profitability.
Bumpy road ahead
While Bansal did not comment on specific numbers, Meesho’s PAT was a low single digit (Rs crore) in July, Moneycontrol has learnt. That was on the back of revenues worth around $400 million (around Rs 3,280 crore) that Meesho generated between January and June, indicating that the path to profitability is still likely to be a bumpy one.
“The largest efficiency has come from reducing our CACs by almost 70 percent. Two years ago, our CAC was roughly Rs 250, it has now come down to around Rs 50-60. Even as we reduce our market expenses, we have been getting a similar level of throughput,” Bansal said in the interview.
The reduction in CAC is especially important because Meesho’s average order value (AOV) is much lower at around Rs 400-450, when compared to about Rs 1,100-1,400 for larger players like Flipkart, as per analysts.
Along with a reduction in CACs, the company's revenue grew 54 percent, while its order volumes registered a 43 percent increase, on a year-on-year (YoY) basis, as per Bansal. He agreed that the growth rate was not massive like in the past but attributed the moderation to Meesho’s maturity as a business and a difficult macroeconomic climate.
While Bansal said the performance is likely to hold steady for the remaining months this year, there are still chances Meesho does not end FY24 in the black, largely because the monthly PAT numbers may not total to a large amount given Meesho's scale.
Last week, Moneycontrol shed light on how Zomato, which delivered a surprise profit of Rs 2 crore in the June quarter, used a critical tax provision to PAT its own back.
“FY24 might be marginally positive or negative. I don't know, I can't forecast with full accuracy. July is a 'business as usual' month because there's no festive season. We wanted to make sure we are profitable before entering the festive season around August when demand is higher…we expect to continue this sort of profitability,” Bansal said.
In FY22, Meesho recorded losses of around Rs 3,251 crore on a revenue of nearly Rs 3,232 crore. Its financial health had improved in FY23, Bansal claimed. Meesho’s revenues grew by around 60 percent on a YoY basis while its losses narrowed by 50 percent in FY23, when compared with FY22, Bansal said. To be sure, the company’s accounting books are still being audited.
Even if it does turn profitable in FY24, Meesho is not ruling out fundraising plans.
Scouting for players
Bansal said Meesho – which now has about $400 million in the bank – is also looking to acquire companies that complement its business. If the move requires Meesho to raise money, it will be open to negotiations.
“We keep scouting for opportunities where we can enhance either our category play or add some capabilities to our business,” Bansal said without revealing more. That could mean Meesho could look for players in categories such as electronic appliances, smartphones and/or others, where it is largely absent, and will also bring in customers at different price points for the company.
Founded by Vidit Aatrey and Sanjeev Barnwal in 2015, Meesho has so far raised over $1 billion and is valued at $4.9 billion, according to data from Tracxn, a private market data provider.
IPO hopes
Meesho had earlier said that if the company turns profitable in FY24, it would consider an Initial Public Offering (IPO) but Bansal said that goal was still at least 12 months away.
"While we are slightly earlier than our expectation in terms of reaching consolidated profit, we still want to have a long enough track record of profitability and growth before we go to the public markets," Bansal said.
In the past, investors have punished loss-making tech stocks which sent their share prices to record lows but then rewarded startups like Paytm and Zomato when they showed an improvement in financial health.
"From a scale, growth and profitability perspective, we could decide to do hit the public markets, but we want to be profitable for a reasonable period of time and grow simultaneously. For us that period could be 12-18 months or so. Then obviously, it's also a question of what the market conditions are," CFO Bansal concluded.
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