The net merchandise value (NMV) of Bengaluru-based e-commerce platform Meesho has increased significantly, indicating a renewed emphasis on expansion and market penetration. Meesho is making big moves ahead of the holidays with a 22% year-over-year growth in NMV to $814 million in Q2 2024, up from $669 million in the same period last year. This is a review of the company’s strategic choices, their ramifications, and how they might affect its trajectory for future growth.
Credits: The Economic Times
Growth Investments and Their Impact
Meesho’s recent growth strategies have been marked by a substantial increase in investments. After a period of restrained spending aimed at stabilizing its finances and moving closer to profitability, Meesho has resumed aggressive growth spending. This shift is particularly evident in its decision to reduce prices on the platform in early Q2 2024. By taking a price hit of approximately Rs 3-4 per order (around $6-7 million in total), Meesho is positioning itself to capture a larger market share, especially in Tier II and III cities.
However, this aggressive pricing strategy has had a short-term impact on Meesho’s contribution margin, which fell from $54 million in Q1 2024 to $47 million in Q2 2024, a decrease of 12.96%. Despite this sequential decline, the contribution margin is still significantly higher (62.07%) compared to the same period last year, indicating that Meesho’s growth strategy is on the right track.
The Role of Election-Related Disruptions
One of the key challenges Meesho faced in Q2 2024 was an increased rate of return-to-origin (RTO) packages due to election-related disruptions. RTO is a crucial metric in e-commerce and logistics, reflecting the frequency of orders returned to the seller or the point of origin without successful delivery to the customer. The increased RTO rate affected Meesho’s bottom line, but the company has demonstrated resilience by maintaining adequate cash reserves and securing additional funding.
Strengthening the Financial Foundation
Meesho’s Q2 2024 EBITDA loss of $8 million was a result of the expenses incurred by its redoubled expansion efforts. Nonetheless, as of June 2024, the corporation has cash reserves of about $700 million, indicating the strength of its financial base. This amount comprises a new investment of at least $250 million in primary capital from a financing transaction that is still in progress and has not yet been made public. Meesho has the financial flexibility thanks to these reserves to carry out its aggressive growth plan and overcome any immediate obstacles.
A portion of these funds is expected to be allocated towards paying taxes due to Meesho’s decision to shift its registered entity from the US to India, a process known as a “flip” in startup circles. This move could streamline operations and potentially offer tax benefits in the long term, further strengthening Meesho’s financial position.
Diversification and Revenue Streams
Meesho’s growth strategy is not limited to price cuts and market expansion. The company has also diversified its revenue streams. Meesho generates income through running advertisements on its platform, facilitating deliveries via third-party logistics providers, and operating its logistics arm, Valmo. Additionally, Meesho is scaling up its loan service for sellers, Meesho Instant Cash, as part of its diversification efforts. The introduction of a 2% platform fee in its branded e-commerce section, Meesho Mall, featuring products from well-known brands like Decathlon, Bewakoof, and Mamaearth, also marks a strategic shift towards monetizing its platform more effectively.
Strategic Leadership Changes
Meesho has bolstered its leadership team to support its growth objectives by adding four independent board directors with significant backgrounds in operations, corporate governance, technology, and financial services. The decades of experience that the new directors—Hari S. Bhartia, Rohit Bhagat, Kalpana Morparia, and Surojit Chatterjee—bring to the table strengthen Meesho’s strategic oversight. Furthermore, Meesho’s commitment to innovation and product development is demonstrated by the recruitment of Mohit Rajani, a former Google and Meta leader, as Chief Product Officer.
Outlook and Future Prospects
Meesho is well-positioned for future growth as a result of its calculated actions, especially in small towns and cities where it hopes to increase its market share. Analysts think that in Tier II and III markets, a well-thought-out plan for holiday sales and focused marketing could produce noteworthy outcomes. Meesho’s emphasis on reasonably priced, unbranded commodities and branded products through Meesho Mall presents a distinctive value proposition in contrast to other market participants who prioritize speedy trade.
