Meesho Limited

Meesho Limited reported a strong Q4 FY26, with the Free Cash Flow (FCF) trajectory expected to continue improving on a quarterly basis. The company achieved a 170 basis points sequential improvement in contribution margin, reaching an exit rate of 4% for the quarter. Management indicated that while there is no specific EBITDA guidance, LTM FCF remains a key metric for evaluating financial health.

The company's logistics strategy, including its in-house Valmo unit, prioritizes cost efficiency, with volumes directed to the most cost-efficient partners. Valmo is a significant focus area for future investments, with plans to bring state-of-the-art automation to its sort centers over the next few years. This initiative is expected to drive further efficiencies and cost improvements across the supply chain.

Meesho continues to invest aggressively in new user acquisition, particularly targeting rural customers, as long as investments meet a predefined return threshold. The company's AI-driven tools, such as the Vaani voice agent, have been instrumental in reducing Customer Acquisition Cost (CAC) by lowering friction for first-time users. India's online transacting user base, currently around 30% of smartphone users, presents a significant growth opportunity compared to over 80% in other emerging markets.

Ad revenue as a percentage of Net Merchandise Value (NMV) saw an uptake in Q4 FY26, with the number of products advertised growing approximately 40% year-over-year. Management highlighted that over two-thirds of sellers, by GMV, are active on ads, and the ROAS (Return on Ad Spend) is considered industry-best. The company plans to continue growing ad revenues by activating more sellers and will adjust pricing strategically to maximize revenue at the right time.

Meesho Mall is being scaled to cater to affordable and value brands, attracting national brands to expand their selection on the platform. The focus is on serving 'mass India' rather than just premium customers. Currently, Meesho Mall's contribution margin is lower than the core marketplace as it is in an investment phase, prioritizing onboarding a wide array of brands and expanding selection across the country over immediate margin maximization.

The company's cash balance reduced by INR 300 crores in the quarter, which management attributed to the volatility of NMV at the end of the quarter. They reiterated that LTM FCF (Last Twelve Months Free Cash Flow) is a more appropriate metric for judging trajectory. Additionally, changes in revenue accounting, where discounts for first orders are now netted off against revenue, and an increasing prepaid mix (lower revenue per order but also lower cost), have impacted the reported revenue per order, which declined from INR 57 in FY24 to INR 47 in FY26.

First-year frequency for new users has been on an increasing trend for the last three years, with new users starting from a higher baseline. Management sees significant potential for further frequency growth, comparing it to value-focused e-commerce companies in China that achieve frequencies closer to 100 times. The quality of non-GST registered sellers is managed through robust systems, ensuring that returns remain stable or improve, and seller concentration continues to reduce as more sellers become active.