Meesho Gears Up for Public Listing, Pursuing Asset-Light Growth Strategy
As Meesho prepares to make its debut in public markets—marking a significant milestone as the premier new-age horizontal ecommerce marketplace in India—the company is intensifying its commitment to an asset-light strategy while also striving to expand its user base. This insight comes from cofounder and CEO Vidit Aatrey during an interview with ET.
Meesho’s business model draws parallels with established Asian ecommerce titans like Pinduoduo and Shopee, standing in stark contrast to domestic competitors such as Flipkart and Amazon, which have invested massively in developing extensive logistical and supply-chain frameworks.
In a dialogue with ETtech, Aatrey elaborated on Meesho’s transformation from a WhatsApp-centric seller community to a commission-free marketplace, dissected the influential role of Valmo in enhancing the logistics landscape, and shared insights on the company’s trajectory, profitability metrics, and how artificial intelligence, along with financial services, will shape its forthcoming endeavors.
Investor Perspectives on Profitability Challenges
The landscape for horizontal ecommerce in India has not historically favored profitability. How have you navigated this terrain with potential investors?
Investors possess over a decade’s worth of data concerning our operations. Throughout, we have maintained a capital-efficient posture, minimizing marketing expenditures and leveraging WhatsApp for user acquisition, effectively adhering to an asset-light model.
The preliminary half of this financial year has witnessed over a 50% growth in orders, with net merchandise value ascending by 44% year-on-year. Moreover, we have achieved positive free cash flow for several consecutive years, an accomplishment that fosters investor confidence.
Industry Pressure and Strategic Choices
Given Amazon and Flipkart’s substantial investments in infrastructure, has there been an impetus for Meesho to adopt a robust, full-stack approach?
Currently, we experience the highest order volumes and the most significant annually transacting user base across India while sustaining an asset-light model.
Globally, companies like Pinduoduo and Shopee have successfully scaled without undertaking extensive infrastructure ownership. Our asset-light strategy reflects a deliberate decision; it is effective and aligns with our aspirations.
Evolution of Meesho’s Business Model
Originally launched as a social commerce platform utilizing WhatsApp, how has Meesho transitioned into a fully-fledged horizontal ecommerce platform?
In our nascent stage, new internet users exhibited a preference for singular applications like WhatsApp. Therefore, to facilitate their online transition, it seemed prudent to commence there.
The pandemic, coupled with increasing user digital literacy, allowed us to channel users towards our dedicated app, which proved to be a strategic move for onboarding a broader audience efficiently.
Barriers for Small Businesses in Online Marketplace
What impediments did small enterprises face in entering the online space prior to your innovations?
The principal obstacle lay in cost—ecommerce transactions were burdened by commissions, making it financially unviable for small vendors with narrow profit margins.
Our zero-commission model revolutionized that dynamic, enabling countless Indian businesses to engage online for the first time, thereby enriching the overall ecosystem.
Innovation in Logistics with Valmo
Valmo has emerged as a pivotal component in transforming the logistics framework. How does it facilitate this change?
Traditionally, ecommerce was served exclusively by modern logistics players. With Valmo, we have broadened participation to encompass all logistics providers. Established firms now find a niche within the ecommerce supply chain due to the infrastructural pathways we have forged. This represents a crucial advancement within our ecosystem.
Approach Towards Profitability Amidst Growing Losses
There have been recent increases in your losses. Is growth taking precedence over profitability for Meesho?
Investments occur when the payback periods exhibit robustness. Over the past 18 months, our value proposition has strengthened, pricing has improved, and marketing payback periods have become appealing.
Thus, we have opted to accelerate investments. Should we notice a weakening in paybacks, we would recalibrate our strategy accordingly. Our paramount focus remains on maintaining positive free cash flow, a distinction we have sustained for the past two years.
Future Intentions and Financial Health
As multiple publicly traded loss-making companies seek further financing, could a similar scenario unfold for Meesho?
Our ethos centers around optimizing for free cash flow. Ultimately, what holds weight is whether funds are being depleted or accrued. For the past two years, we have upheld a position of positive free cash flow, thus obviating the necessity to dilute shareholder equity.
This outlook is expected to persist; we shall maintain our growth trajectory while prioritizing free cash flow as our guide.
Maintaining Growth Amidst Market Conditions
Is growth anticipated to remain your foremost objective as you navigate the public market landscape?
The strategic focus will remain unchanged. We aspire to enhance free cash flow and create long-term value. If favorable paybacks present themselves, we invest; otherwise, we temper our pace. This methodology endures.
Market Dynamics and Customer Base Expansion
How has customer penetration evolved? Are you observing any deceleration in ecommerce demand?
Not in the least. India continues to be one of the least penetrated ecommerce markets on a global scale. Provided we maintain a compelling proposition centered on affordability, customer engagement will persist. Our metrics indicate no signs of slowdown.
Drivers of Future Growth
What are the primary catalysts for growth in the coming years?
- Expansion of our annually transacting user base, which currently stands at 23 crore.
- Introduction of more affordable product offerings spanning various categories.
- Enhancing purchase frequency, which has risen from 7.5 orders per year two years prior to nearly 10 now.
Diversification into New Categories
Are you considering re-entering sectors such as grocery or fast-moving consumer goods (FMCG)?
Affordability is a universal principle applicable across all categories. Notably, the home and kitchen segment has witnessed its share of orders double, now accounting for 19% over the past two years. FMCG brands are also flourishing on our platform.
Penetration at various price points remains nascent, and we continue to broaden our selection driven by affordability.
Conclusion of AWS Dispute
Following the recent settlement of your dispute with AWS, has everything been reconciled?
Indeed. The settlement costs have been accounted for, although specific figures remain undisclosed.
Current Financial Standing Ahead of Listing
What is your cash balance as you approach the listing?
We maintain approximately Rs 3,500 crore, post the tax payment that occurred subsequent to September.
Acquisition Strategies
Are acquisitions part of your strategic vision moving forward?
We remain amenable to inorganic growth opportunities that align with our mission. Nevertheless, the majority of our expansion thus far has stemmed from organic growth, and that focus will persist.
Investments in New Initiatives
What fresh initiatives are currently receiving your investment focus?
Our primary avenues of investment are twofold: first, incorporating AI-driven shopping experiences that render discovery more conversational and contextually relevant, particularly for rural clientele; second, advancing financial service offerings aimed at providing credit access for vendors, as well as Buy Now, Pay Later (BNPL) options for consumers, while leveraging our substantial transacting user base to address gaps akin to those observed in China and Southeast Asia.
Future of Financial Services
How significant are financial services currently, and what trajectory do you foresee?
We find ourselves in the nascent stages. Experimentation is key as we refine our offerings, such as working capital for sellers and BNPL solutions. Once we fine-tune our product, scalability will occur rapidly, akin to our previous successes with Valmo and content-led commerce.
Adoption of AI Features Among Customers
Will your customer base embrace AI-enhanced shopping features meaningfully?
Customers do not actively seek AI; they opt for simplified experiences. We deploy AI to personalize feeds, interpret behavioral patterns, enhance session-level relevance, and even demystify unstructured Indian addresses. Should it simplify the shopping process, users will inevitably adopt these innovations.
Source link: M.economictimes.com.
