Mohalla Tech, the parent entity of vernacular social media platform ShareChat and short video entertainment app Moj, raised one of the largest funding rounds—$255 million—in September 2022 from Google, Times Group, and Temasek. During FY22, the company raised three rounds with its valuation rising 5X, surpassing the $5 billion threshold.
The hockey stick rise in ShareChat’s valuation came alongside a 4.3X surge in its revenue from operations to Rs 347 crore during the last fiscal year against Rs 80.4 crore in FY21, according to its consolidated annual financial statement with the Registrar of Companies (RoC).
The Bengaluru-based company is primarily engaged in the business of operating social media platform ShareChat, short video entertainment app Moj and online fantasy sports platform Jeet11.
ShareChat collected more than 60% of its revenue via advertisement services on the platform. These collections jumped 2.8X to Rs 212.2 crore in FY22 from Rs 77 crore in FY21. It also sells “ShareChat Coin” via in-app purchases for its chatrooms which accounted for 34.7% of the overall operating revenue. This income skyrocketed 35X to Rs 120.5 crore in the last fiscal year from only Rs 3.44 crore in FY21.
In February 2020, the company launched its fantasy sports gaming platform Jeet11, a skill based game for real money. Revenue from the gaming platform stood at Rs 14.24 crore in FY22. Importantly, Jeet11 shut down in December last year and laid off around 100 employees.
ShareChat also earned Rs 72.3 crore from interest and gain on current investments and other non-operating income which pushed its total revenue to Rs 419 crore during the last fiscal year (FY22).
Business development expenditure (which is likely to include customer acquisition and technology-related costs) remained its largest cost element and formed 33.5% of ShareChat’s total expenses. This cost grew 72.5% to Rs 1,143 crore in FY22 from Rs 662.6 crore in FY21.
The growth in scale could also be evident from the spike in server costs which blew up 2.3X to Rs 845 crore in FY22 from Rs 367 crore in FY21. Further, employee benefits expenses soared 2.8X to Rs 505 crore during the fiscal year. This cost also included Rs 73.83 crore of share-based payments to employees (non-cash expense).
Spends on content development and legal fees shot up 8.6X and 6.1X respectively to Rs 422 crore and Rs 70 crore in FY22. ShareChat also incurred platform service fees, communication, distributor support, analytics, and other related costs of Rs 78.67 crore. In the end, its total cost surged 2.4X to Rs 3,407 crore in FY22 against Rs 1,420 crore in FY21.
Akin to its expenses, ShareChat’s annual losses jumped 2.3X to Rs 2,988 crore in FY22 as compared to Rs 1,324 crore in FY21. Its cash outflows from operations soared 2.5X to Rs 2,676 crore during the last fiscal year. The company also booked a non-cash expense of Rs 137 crore as loss on the fair value of CCPS classified as a liability during FY21. Entrackr has excluded this expense while calculating the overall losses and ratios.
Even with the rise in losses, EBITDA margin and ROCE improved to -685.82% and -69.35% in FY22 which could be ascribed to the over four-fold jump in scale. On a unit level, ShareChat spent Rs 9.82 to earn a rupee during the same period. Meanwhile, its outstanding losses climbed over 96% to Rs 5,261 crore at the end of FY22.
ShareChat’s story is that of the challenge in building a fundamentally made for India platform that is as good as any global platform. The investments required are huge, with an anaemic Indian advertising market to count on. With India ranking among the top five markets worldwide across leading social media platforms and apps, one can understand the investment logic its investors see in ShareChat. But with losses or costs showing no signs of flagging off just yet, the firm needs more than one year of 4.3X revenue growth to catch up and enter sustainable territory, as far as its long term survival goes.
The rough benchmark will obviously be Meta’s Facebook, which grew revenues from under $2 billion in 2010 to almost $120 billion in 2021. But can the Indian advertising market ever deliver anything remotely close to that growth over a decade? That, truly, is the billion-dollar question for ShareChat and its investors now.