[What The Financials] ShareChat’s INR 676 Cr FY20 Loss & High Cost Of Making Bharat’s Social Media App

The exodus of Chinese apps from India and the focus on self-reliance for an Atmanirbhar Bharat shook up the Indian internet ecosystem last year. The ban on TikTok opened up the Indian short video sharing market for homegrown alternatives, while entrepreneurs realised that the internet for the next billion users would have to tap into the demand for content in Indian languages. Tapping into the changed market conditions last year was Indian social media platform ShareChat, whose interface is very similar to Instagram, except it’s offered in 14 Indian languages.

Last year, ShareChat also launched Moj, its short video sharing platform built on a similar premise as TikTok. However, if the company’s financials for the fiscal year ended March 31, 2020 (FY20) are to be seen, one would realise that building a profitable business out of a Bharat-focussed Indian language social media platform is a long shot, at best. 

Where ShareChat Earned The Money

Even though ShareChat’s revenue for FY20 stood at INR 38.12 Cr and grew 49% year-on-year (YoY), from revenue of INR 25.63 Cr in FY19, just over 25% of it is through operations. Of the total revenue, operational revenue was INR 9.38 Cr, and this comes after the company began monetising its platform in the fiscal year. 

Other income, which includes the interest earned on fixed deposits and current investments, stood at INR 28.74 Cr. It must be noted that most startups that raise VC funding allocate a portion of the funding raised to such investments. 

In the case of ShareChat, it had raised $100 Mn in its Series D round led by Twitter in August 2019.

Of the company’s operational revenue of over INR 9 Cr, INR 8.92 Cr was earned as income from advertisement contracts. These contracts guarantee ShareChat’s business customers a pre-decided number of views/impressions/installs through the ShareChat platform. The company also owns a fantasy sports/gaming platform called Jeet11 offered in 14 Indian languages besides English but wasn’t able to monetise it during the year. 

Further, the company earned INR 0.45 Cr from the ecommerce startup Elanic, which it had acquired during the year. In February last year, ShareChat had acquired the Bengaluru-based online fashion marketplace, with Elanic’s employees joining ShareChat with senior leadership roles. 

During the year, the company’s expenses also grew 23%, from INR 581.45 Cr in FY19 to INR 714.13 Cr in FY20. Thus, the company’s net loss also grew 22%, from INR 556 Cr in FY19 to INR 676 Cr in FY20, evidencing the tricky nature of building a new-age social media platform geared towards users from tier 2 and 3 cities and rural areas. 

As for the breakup of the company’s expenses, employee benefit expenses grew 174% to INR 80.25 Cr; depreciation, depletion and amortisation expense grew 1,318% to INR 5.53 Cr; and, other expenses, which includes the company’s spending on rent, fuel, conveyance, legal and professional charges and research & development, grew 14% to INR 628 Cr. 

Its biggest area of spending was research and development, where it spent nearly 330 Cr in FY20, up from 300 Cr in FY19. Since ShareChat declined to respond to Inc42’s queries about its financial performance in FY20, we cannot ascertain the exact nature of the spending in this category. Interestingly, advertising expenses are not listed separately as an expense item. 

Will ShareChat Hit Revenue Growth Spurt In FY21?

ShareChat spent over INR 18 for every single rupee of revenue in FY20, which kicks off its major monetisation effort. However, the losses cannot be ignored. It’s a major hurdle to overcome and whether the market has opened up its wallet since March 2020 remains to be seen. 

In all likelihood, the social media platform would have improved this considerably in the wake of rapid adoption during the pandemic and the growth for Indian social media apps after June 2020. 

Considering that the financials are till the end of March last year, they also don’t reflect the impact of Moj, ShareChat’s short video platform, which launched on June 29 last year. The company had also acquired meme-sharing app Memer in April 2020. 

It is to be expected that the company’s revenue will grow further owing to the diversification of its revenue streams and further solidification of its ecommerce and gaming products. 

Last month, ShareChat’s Moj surpassed 100 Mn downloads, while in October last year, Moj, along with Times Internet-owned MX TakaTak and Dailyhunt’s Josh, was featured in the list of most downloaded apps from the Google Play Store in the third quarter of 2020. MX TakaTak was ranked 12th in that list, while Josh and Moj were ranked 13th and 14th respectively, owing solely to the Indian userbase. 

Last year also saw ShareChat raise $40 Mn from Twitter and Lightspeed Ventures in its pre-Series E round. Reports suggest that Google could soon acquire ShareChat for $1.03 Bn. Although, the reports have been unverified as yet. 

With all hopes of ByteDance-owned TikTok returning to the Indian market being dashed this year, with TikTok India officially announcing the closure of its operations in the country, the market will continue to see increased competition among Indian players, all of whom are also gaining the interest of startup investors.