Smallcase revenue soars over 2X in FY24; losses down 74%

Following a flat growth in FY23, Amazon-backed Smallcase has reported 2.2X growth during the fiscal year ending March 2024. At the same time, the Bengaluru-based firm controlled its losses by 74% in the last fiscal.

Smallcase revenue from operations surged to Rs 67.4 crore in the last fiscal year from Rs 30.6 crore in FY23, its consolidated annual figures sourced from the Registrar of Companies show.

The company operates a platform for brokers to facilitate transactions in exchange-traded products. It primarily makes money through transaction fees collected from brokers which accounted for 85.8% of the total revenue. This income spiked 2.6X to Rs 57.8 crore in FY24.

Revenue from the research service fees and other ancillary services stood at Rs 5.1 crore and Rs 4.5 crore, respectively. Smallcase made another Rs 7.6 crore from interest on deposits and gain on investments which tallied the overall revenue to Rs 75 crore in FY24 from Rs 43 crore in FY23.

Employee benefits were the largest cost center for Smallcase which formed 64.8% of the overall expenditure. This cost dropped 15.7% to Rs 70 crore in FY24 that also includes Rs 2.9 crore as ESOP cost (non-cash).

Smallcase’s advertising and promotion cost shrank by 75.8% to Rs 16 crore in FY24. Technology, legal, rent, maintenance, and other overheads pushed its overall expenditure to Rs 108 crore in FY24.

Excluding the cost of net loss on fair value changes of shares subject to buyback of Rs 141 crore and Rs 32 crore in FY24 and FY23, respectively. 

According to the shareholder agreement, in September 2023, shareholders waived their buyback rights for certain shares, making these rights unenforceable. From September 30, the shares qualified as equity instruments under Ind AS. A fair value change of Rs 141  crore (up from Rs 31.65 crore on 31 March 2023) was recorded in profit and loss, and Rs 1,081.78 crore was reclassified to equity share capital and securities premium.

The 75.8% and 15.7% drop in advertising and employee benefits enabled Smallcase to reduce its losses by 74.4% to Rs 34 crore in FY24. Its ROCE and EBITDA margins improved to -23.6% and -41.3%, respectively. On a unit level, the company spent Rs 1.60 to earn a rupee in the last fiscal.

Smallcase has raised around $70 million to date including $40 million in Series C round led by Fearing Capital in 2021. According to the startup data intelligence platform TheKredible, Peak XV is the largest external stakeholder followed by Fearing Capital and Blume Ventures. 

While Smallcase continued a recent trend of cut backs on advertising costs, the firm is certainly not a shoo in for a profitable future yet. Typically, the impact of cut backs follows with a lag, and FY25 will show us how SmallCase emerges from the cost-cutting. Suffice to say, if growth drops significantly, it will lead to existential questions for the firm. We believe the firm has reason to be disappointed with the takings from research and other services, and now faces the choice of continuing the burn there or focus harder on the platform business.