Why Meesho Might Turn Profitable Earlier Than Giants Like Flipkart, Amazon

While Meesho is much smaller in size with regards to GMV compared to Flipkart and Amazon India, its average monthly active user count is roughly 55% of the incumbents.

"Meesho had an impressive 1.2 crore average monthly active users on its platform during 2022. Over the last two years, Meesho added 10 crore MAUs, much higher than additions by its peers. Meesho scores well on all stages of an online purchase journey, including awareness (measured by app downloads), consideration (measured by MAUs), and transaction (measured by MTUs)," Jefferies said.

The company also has the lowest take-rate among e-commerce players in India, making it the preferred platform for sellers and customers comparing prices of products across several platforms if delivery time is not a constraint.

"The two key revenue streams for Meesho are fulfilment charges and ad income. Against the take-rates charged by competitors who have a convenience-first model, Meesho's fulfilment charges are lower. This allows it to offer much lower prices to customers versus the same product from the competition."

Meesho's low pricing, coupled with a wide selection, has made online shopping an attractive proposition for customers irrespective of income classes. "Interestingly, over 65% of products on Meesho are cheaper by 20–30% versus other platforms."

Further, in order to drive costs lower, Meesho follows an asset-light model and outsources the delivery to third-party players such as Delhivery, Ecomm Express, and Shadowfax.

"Flipkart and Amazon have a convenience-first model to appeal to the mid- to high-income groups. Quick delivery timeline is one of the key expectations of such customer cohorts," it said, adding their significant investments in logistics infrastructure in the form of captive delivery arms like Ekart (Flipkart) and Amazon Transportation Services.

Meesho's primary customers are -oriented low- to mid-income cohorts, for whom delivery speeds may not be a key priority. "Hence, it makes sense for Meesho to have an asset-light model where it outsources the delivery to third-party players ... The scale offers Meesho the ability to negotiate better with the third party logistics partners." 

Softbank and Meta-backed Meesho is already contribution margin positive from pre-marketing and indirect spends and is on track to achieve Ebitda breakeven over 2023, according to Jefferies.

Whereas giants such as Amazon India and Flipkart, with over a decade of operations, are still running losses.

Data from Tofler showed that Amazon's India units posted a loss of Rs 3,649 crore in FY22, while Flipkart posted losses of over Rs 7,800 crore, according to regulatory filings cited by news agency PTI in November last year.