Meesho says festive demand supports continued marketing spend

Meesho said festive demand exceeded its expectations, with all-time-high traffic across the platform, supporting continued marketing investment after expenditure rose almost 50% sequentially. Management said its investment hurdle rates were unchanged because it is targeting higher-lifetime-value users, even as sellers faced crude-linked supply disruptions over the preceding 20 days.

Why is Meesho continuing to spend on marketing?

Meesho is continuing marketing investment because management said returns remain healthy at the current spending level as a percentage of net merchandise value, or NMV. Responding to an analyst’s reference to marketing expenditure rising almost 50% sequentially, Vidit Aatrey said spending is reallocated using customer acquisition cost, or CAC, and lifetime value, or LTV, together rather than CAC alone.

Meesho said its internal hurdle rate for marketing investment has not changed. Aatrey said the platform is investing more in users who may have higher LTV, while purchase frequency has improved. He added that new-user growth in big cities is occurring almost as fast as in smaller towns, which management cited as support for continued spending across geographies.

The quarterly user comparison was also affected by the festive calendar. Meesho said festive sales occurred in September last year but shifted to October this year, creating a year-on-year base effect. An analyst noted that last-twelve-month active transacting users had increased by 10 million from the prior quarter, but management said festive-month additions and user quality should be considered alongside that measure.

How did Meesho’s festive demand compare with seller conditions?

Meesho said the festive season performed better than management expected, as traffic reached all-time highs and consumers bought across categories for the first time. Aatrey said the company had published day-one festive figures earlier in the month, but described the broader season as delivering good growth and bringing more consumers to the platform.

Demand conditions differed from seller operating conditions over the preceding 20 days. Meesho said developments in the Middle East and changing crude prices disrupted sourcing for some sellers because petroleum products are used in supply chains across categories. Management said it was helping sellers with these issues, but did not disclose a festive NMV figure, seller-disruption metric or category-level growth rate.

Meesho attributed its demand view partly to its mix of utility products, including personal care, beauty, home, kitchen and baby-care goods. In discussing the macro outlook over the next 12 months, Aatrey said the company had not seen a consumer-demand concern in its data and continued to see healthy traffic conversion. He argued that Meesho’s value proposition can help consumers save money if household budgets come under pressure.

This was management’s assessment rather than a sales forecast. The disclosed contrast was that consumer traffic reached an all-time high during the festive period while sellers encountered crude-linked supply challenges. Meesho did not quantify whether those supply disruptions affected order availability, delivery times or festive sales volumes.

How does marketing fit Meesho’s growth plan?

Meesho said marketing and pricing investments are part of a 12-to-18-month plan to scale products and categories. Management said it needs to bring more consumers to the platform while making more sellers, categories and products viable. The intended mechanism is a marketplace flywheel in which broader demand and selection can reinforce each other over time.

Management said pricing investments may not generate an immediate 10% or 15% increase in growth. Aatrey said lower prices can make products and categories viable that were unviable in the prior month or year, encouraging sellers to join and creating effects over two, three or four quarters. Meesho said it uses leading indicators to assess those effects, but did not disclose the indicators.

Meesho also said it can pass logistics savings to consumers through better platform pricing. Management said growth remained above 30% after adjusting for the shift in festive timing, according to an analyst’s framing, but argued that growth in one quarter does not remove the case for reinvesting efficiencies. The company said its objective is to expand affordability and selection over a longer period.

Dhiresh Bansal said Meesho expects significant contribution-margin improvement in FY27 compared with FY26. Management aims to restore some logistics-related spread lost in FY26 towards FY25 levels during the year, while retaining flexibility over how much efficiency is reinvested in pricing, retained in the profit and loss account, or offset by costs including server infrastructure.

What operating changes could fund Meesho’s reinvestment?

Meesho said logistics efficiencies were the main driver of contribution-margin improvement in the second quarter, rather than advertising monetisation. Management cited lower return-to-origin, or RTO, rates, greater order density, network redesign and efficiencies within Valmo, its logistics network. It said the main network changes were in the middle mile rather than the last mile.

The middle-mile changes include more efficient line-haul use, larger trucks in some locations, and revised use of gateways and sorters. Meesho said RTO improved quarter on quarter even though the NMV-to-gross-merchandise-value ratio did not appear to shift materially. Management said an RTO reduction flows directly to the bottom line, providing a link between delivery operations and contribution margin.

Meesho expects lower RTO over time partly because the prepaid mix is rising, and prepaid orders have lower RTO than cash-on-delivery orders. It is also working on software and delivery-process changes for cash-on-delivery orders. Management said expanding deeper into the country can offset some of these benefits, so it did not provide a numerical RTO target.

Server cost was elevated in the second quarter because graphics processing unit, or GPU, capacity constraints required advance procurement for the festive period, Meesho said. Management expects server cost as a percentage of NMV to return to its baseline by Q4 FY27 through arrangements with multiple providers and regions. It described server cost as semi-variable, with both fixed and usage-linked components.

Conclusion

Meesho’s message is that its almost 50% sequential increase in marketing expenditure remains within unchanged return guardrails, supported by higher-LTV user acquisition and improved purchase frequency. All-time-high festive traffic provided the demand evidence for that position, although seller sourcing was disrupted by crude-price volatility during the preceding 20 days.

The next test is execution of the 12-to-18-month product and category expansion plan, including whether logistics savings continue to be reinvested in pricing and selection. Management has also identified Q4 FY27 as the point at which server cost as a percentage of NMV is expected to return to baseline, while FY27 contribution-margin progress will depend on the share of logistics efficiency Meesho retains or passes through.