Meesho cuts monthly cash burn by 90% to $4 million, still has half a billion dollars in bank

File image of Meesho co-founders Vidit Aatrey (left) and Sanjeev Barnwal (right)

E-commerce unicorn Meesho has cut its monthly cash burn to $4 million (Rs 30 crore) in December while it still has around half a billion dollars sitting in its bank account, according to a top company executive.

In a year when investors across the tech start-up world asked portfolio companies to show a clear path to profitability, the Softbank-backed company said that it has brought its monthly cash burn down by 90 percent from $40 million (Rs 300 crore) in January this year.

This comes even as financial filings by Meesho with the Ministry of Corporate Affairs, reviewed by Moneycontrol, showed that its revenue grew four times to Rs 3,232 crore in financial year 2022, whereas net loss surged 6.5 times to Rs 3,248 crore during the period.

Meesho's Chief Financial Officer Dhiresh Bansal said that the massive loss in FY22 was due to large investments made during the beginning of the year towards new customer acquisition and a pivot from a reseller-led business model to a consumer marketplace.

As a result, the e-commerce startup said that its mobile app racked up 273 million installs in 2022. Its annual transacting users surged to 140 million, up approximately 80 percent, while the company saw a record 910 million orders in CY22, up 135 percent.

The company is looking to become cash-flow positive and attain profitability by the middle of 2023.

Bansal said that the ads business is turning out to be the most important lever in Meesho’s path to profitability. Although its monetisation started in FY22, the segment that sells ads to merchants on the platform already accounts for half of its gross profit, while constituting 4 percent of its net sales.

“The ads business is great from a profitability standpoint as gross margins are around 95 percent. We expect the ad business to grow much bigger and important for us, similar to what it is like for e-commerce giants like Alibaba and Pindouduo,” explained Bansal.

The Meesho CFO outlined two more levers of profitability — improvement in user acquisition costs with an increase in organic traffic (85 percent of the traffic is now driven by repeat users) and the benefits of economies of scale kicking in.

According to Bansal, while the company’s gross merchandise value has grown 2X to $5 billion in calendar year 2022, its fulfillment expenditure per order has remained stable despite not having a captive logistics network.

“The problem with captive logistics is that it has a utilisation of around 60-65 percent, whereas the utilisation is over 80 percent in case of third party logistics,” he explained.

However, the company’s financials showed it incurred logistics and fulfillment costs of Rs 2,829 crore in FY22, which was about 88 percent of its revenue. In the previous financial year, the company had spent Rs 632 crore on logistics and fulfillment, which was 80 percent of its revenue.

Meesho’s financial filings showed that its marketing expenses rose 508 percent to Rs 2,579 crore in FY22. Its expenses on account of employees grew 242 percent to Rs 509 crore as the company increased its staff strength from 800 to around 2,000 during the period.

The Softbank-backed company is seen as a challenger to the dominance of Amazon and Walmart-owned Flipkart in India’s e-commerce market that is estimated to be around $55 billion in size currently.

Meesho said that its festive sales in the September-November period grew 70 percent year-on year in 2022, whereas the e-commerce industry as a whole logged a 25 percent growth. It claims to have logged more than 100 million orders both in September and October.