As logistics gains improve marketplace economics, Meesho is exploring new ways to generate revenue from its expanding consumer and seller ecosystem
Meesho
has spent much of its journey building scale in India’s value commerce market. Its low-cost marketplace model has helped it expand its reach beyond large cities, bring more sellers online and attract consumers looking for affordable products. But as the company moves towards its next phase of growth, the goalpost is shifting from acquiring users and expanding transactions to extracting more value from the ecosystem it has built.
Advertising is emerging as one of the key opportunities. With 284 Mn annual transacting users (ATUs) and 1.13 Mn annual transacting sellers as of Q2 FY27, Meesho has a large marketplace that it can potentially monetise through sponsored listings and other advertising products. The company expects advertising to become a more meaningful contributor to its revenue mix from FY28.
At the same time, Meesho is exploring newer business lines, including lending products for consumers and sellers, while expanding branded commerce through Meesho Mall and discovery-led shopping through content commerce. These initiatives could open up additional revenue streams, although their contribution to the company’s financials remains at an early stage.
The opportunity comes as Meesho makes progress on its marketplace economics.
Its Q2 FY27 performance shows that the core marketplace is growing and its operating economics are improving. Revenue from operations increased 34% year-on-year to ₹4,119.9 Cr, while net merchandise value (NMV) grew 23% to ₹12,911 Cr.
In the reported quarter, its contribution margin improved to 6% of net merchandise value (NMV), compared with 4.6% in the previous quarter and 3.3% a year earlier. Its marketplace adjusted EBITDA loss also narrowed to ₹130.5 Cr from ₹371 Cr in Q2 FY26.
However, management cautioned that the 6% contribution margin recorded in Q2 FY27 should not be viewed as the new normal, as some of the logistics efficiency gains may be passed on to consumers and sellers to support growth.
The question, therefore, is whether Meesho can turn its growing consumer and seller base into higher-value revenue streams without compromising the affordability that underpins its marketplace.
Advertising offers Meesho a way to generate more revenue from the traffic and transactions already flowing through its platform. As its user base and seller ecosystem expand, the company has an opportunity to charge sellers for better visibility and access to consumers who are actively browsing products.
For sellers, sponsored placements can help products stand out in a crowded marketplace. For Meesho, they can create an additional revenue stream without requiring it to take ownership of inventory or significantly change its core marketplace model. This is particularly relevant in a business where affordability and low prices remain central to customer acquisition.
The scale of the opportunity is supported by Meesho’s operating metrics. Its ATUs grew 21% year-on-year to 284 Mn in Q2 FY27, while annual transacting sellers increased 60% to 1.13 Mn. Placed orders rose 17% to 819 Mn during the quarter, and NMV grew 23% to ₹12,911 Cr.
“A larger marketplace gives Meesho more opportunities to connect seller advertising with consumer discovery. However, the size of its user base alone does not determine how much it can earn from ads. The company will need to demonstrate that sellers are willing to spend consistently on advertising and that paid placements generate measurable returns through product views and orders,” an ecommerce analyst said.
Advertising monetisation is still at a relatively early stage. On the Q2 FY27 earnings call, it said the sequential improvement in contribution margin was primarily driven by logistics efficiencies, rather than a significant increase in advertising monetisation. It also expects advertising to become a more meaningful contributor as a percentage of NMV in FY28.
Motilal Oswal expects higher advertising monetisation to support contribution margin expansion from FY28, citing seller demand for advertising and the potential to improve the platform’s monetisation.
However, Meesho will have to balance monetisation with the shopping experience. Its value-commerce positioning depends on offering consumers affordable products and a wide selection. If sponsored placements make discovery less relevant or push sellers towards higher advertising expenditure that is eventually reflected in product prices, the company could risk weakening some of the advantages of its model.
The other consideration is the distribution of advertising benefits across sellers. Larger and more established sellers may have greater capacity to spend on visibility, while smaller sellers could find it harder to compete for prominent placements. Meesho will need to build an advertising ecosystem that delivers returns for sellers across different sizes and categories, the analyst added..
The key monitorable, therefore, is not simply the growth in advertising revenue, but how much of that revenue Meesho can retain as incremental contribution after accounting for the cost of serving the marketplace. If advertising can scale without materially increasing operating costs or affecting affordability, it could become a more durable margin lever.
Beyond advertising, Meesho is looking to deepen its engagement with consumers and sellers through a wider set of services. These initiatives could increase the number of ways in which the company earns from its ecosystem, although they are at different stages of development.
One area is lending. During the earnings call, management confirmed that Meesho is working on both consumer-side and seller-side lending products. The company is expanding its network of non-banking financial company (NBFC) partners and is also looking to work with banks.
For consumers, access to credit could potentially support purchases on the platform, while seller financing could help merchants manage working capital and grow their businesses. If structured effectively, these offerings could strengthen Meesho’s relationship with both sides of the marketplace.
However, the company has not disclosed lending-related assets under management, revenue targets or the expected financial contribution of these products. It is also not clear how much of the lending opportunity Meesho intends to capture directly versus through its lending partners. For now, it is better viewed as an emerging business opportunity than an established monetisation engine.
Meesho Mall and content commerce represent another route to deepen marketplace engagement. Meesho Mall, which had around 1,800 brands in Q2 FY27, recorded 81% YoY growth in NMV. NMV from Tier 3 and smaller markets grew 89%, while around half of Mall customers during the quarter were first-time buyers on the branded-commerce offering.
The growth indicates that Meesho is making progress in bringing branded products to a consumer base that has traditionally been associated with unbranded and lower-priced merchandise. A broader product mix could help the platform attract new customer segments and increase the range of purchases made by existing users.
Content commerce is also expanding. Its NMV grew 160% YoY in Q2 FY27, while the number of content pieces generating orders increased 144% to 2.2 Mn. The ecosystem had more than 4 lakh sellers participating in content-led commerce.
The proposition is to use videos and other content formats to help consumers discover products, rather than relying entirely on search-led shopping. This could create more product discovery opportunities and potentially improve engagement. Meesho has also said that the share of orders coming from discovery-led recommendations has increased, alongside time spent on the platform.
However, rapid growth from these offerings does not automatically translate into a meaningful revenue contribution. Meesho has not disclosed the share of total NMV generated by Mall or Content Commerce, nor has it provided specific monetisation targets for either. Their longer-term value will depend on whether they can increase purchase frequency, attract higher-value transactions and create additional opportunities for advertising.
AI is another part of this effort. Meesho is using AI across product discovery, ranking, fraud prevention and logistics, while also deploying AI agents in engineering and other internal functions. The company said 65% of its engineering pods were operating with one engineer directing AI agents. It reported a 41% reduction in code-review approval time and a reduction in data-science model deployment time from 17 days to three days.
These productivity gains could help the company develop products and improve operations faster. But AI also brings infrastructure costs. Meesho’s GPU footprint increased 150%, while server costs rose to 2.3% of NMV in Q2 FY27 from 1.9% in the previous quarter. Management expects these costs to normalise towards the previous baseline as a percentage of NMV by Q4 FY27, but that remains an expectation to be tested.
The newer initiatives are also still investment-heavy. Management has indicated that it is keeping investments in these businesses within a cap of around ₹200 Cr, while emphasising that product-market fit and unit economics will be important before scaling further. This suggests that Meesho is not yet positioning these offerings as immediate contributors to profitability.
The monetisation opportunity has to be seen alongside Meesho’s broader effort to improve its marketplace economics. The company reported a contribution margin of ₹775 Cr in Q2 FY27, up from ₹531 Cr in Q1 FY27. As a percentage of NMV, the margin improved to 6% from 4.6% sequentially.
The improvement was largely driven by lower logistics costs, supported by better order density, network redesign, improved route utilisation and efforts to reduce return-to-origin (RTO) orders. Management also indicated that it intends to recover some of the logistics-related margin spread lost in FY26 towards FY25 levels during FY27.
However, it has cautioned against extrapolating the Q2 contribution margin as the new normal. Some of the savings could be passed on to sellers and consumers through lower prices, while a part may be retained to improve profitability. The timing and extent of this balance will matter as Meesho enters the festive period and continues to invest in growth.
There are also costs that could absorb some of the gains. Meesho’s advertising and sales promotion expenses increased ahead of the festive season, taking growth spending to 2.9% of NMV in Q2 FY27 from 2.1% in Q1. Server costs also rose, reflecting the higher computing requirements of the platform.
The company reported a consolidated adjusted EBITDA loss of ₹172.1 Cr in Q2 FY27, while its consolidated net loss narrowed to ₹132.4 Cr from ₹411.4 Cr a year earlier. Although the marketplace business is moving towards better unit economics, its newer initiatives continue to add to the overall loss.
Cash flow also needs to be viewed over a longer period. Meesho reported positive consolidated free cash flow of ₹345 Cr in Q2 FY27, compared with an outflow of ₹226 Cr in Q1. But its last-twelve-month consolidated free cash flow remained negative at ₹565 Cr. The quarterly improvement was partly supported by seasonal working-capital movements, as collections from consumers ahead of the festive sale preceded settlements with sellers.
This makes the quality and durability of cash generation an important measure of progress. Advertising could help improve margins because it allows Meesho to monetise marketplace activity without taking on inventory. Lending and other initiatives may create additional revenue opportunities, but their economics will depend on partner arrangements, customer adoption and the cost of scaling.
Brokerage views reflect both the opportunity and the execution risks. Motilal Oswal sees advertising as a medium-term margin lever and expects contribution margins to remain well above FY26 levels. Nomura, however, has flagged the possibility of some margin improvement reversing in Q3 FY27 as the company reinvests gains into growth and category expansion during the festive season.
Ultimately, Meesho’s next phase will depend on how effectively it monetises the scale it has already built and whether new businesses can add revenue and improve customer and seller engagement without pushing up costs or weakening Meesho’s low-price proposition. For a platform that has built its position on affordability and scale, monetisation will have to deepen the business without changing what makes it attractive to consumers and sellers.
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[Edited by Nikhil Subramaniam]
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Source: Inc42
