Fidelity marks up SoftBank-backed Meesho’s fair value by 14% after markdown in April

Fidelity marks up SoftBank-backed Meesho’s fair value by 14% after markdown in April

In recent developments, Fidelity Investments, a prominent US-based Asset Management Company (AMC), has raised the fair value of its investment in Meesho, an e-commerce platform backed by SoftBank. This increase in fair value is documented in Fidelity’s latest filings. Fidelity initially invested around $42 million in Meesho back in September 2021. However, in April, it had significantly reduced the fair value of its investment to $37.84 million.

Now, as of July 31, Fidelity has revised the fair value of its investment upward, marking it at approximately $43.24 million. This represents a markup of a little over 14 percent compared to its previous valuation in April. This upward revision in fair value suggests that Fidelity believes Meesho’s financial prospects and potential have improved since its previous valuation.

It’s worth noting that the fair value of an investment is a key metric used to reflect the estimated worth of an asset in a market-based or market-like scenario. Asset management companies like Fidelity regularly assess and adjust the fair values of their investments to accurately represent their potential returns and risks.

This series of fair value adjustments demonstrates Fidelity’s ongoing evaluation of Meesho’s performance and its confidence in the e-commerce platform’s growth and value in the market. It’s important to stay updated on further developments to understand the trajectory of Fidelity’s investment in Meesho and the broader implications for the e-commerce and investment sectors.

The slight markup in Meesho’s fair value effectively puts the valuation of the company at slightly over $5 billion, up from its previous valuation of $4.9 billion. This valuation was established when Meesho secured $570 million in its Series F funding round, with participation from investors like Fidelity and B Capital.

It’s crucial to recognize that these adjustments in fair values, as made by asset management companies like Fidelity, reflect their internal assessments of the broader economic and industry-specific conditions. They also consider the startup’s own performance, market trends, and potential growth. However, these adjustments don’t necessarily imply a permanent increase or decrease in the overall valuation of the startup.

Valuations can fluctuate due to a variety of factors, including changes in market sentiment, shifts in the startup’s financial performance, alterations in the competitive landscape, and macroeconomic influences. Hence, while these fair value adjustments provide insights into how Fidelity perceives Meesho’s current worth, they shouldn’t be interpreted as definitive indicators of the company’s long-term valuation.

Investors and market observers should be aware that startup valuations are dynamic and can change rapidly. As such, tracking ongoing developments and staying informed about the broader market context is essential for a comprehensive understanding of a company’s valuation and potential future growth.

Meesho’s lack of an immediate response to Moneycontrol’s inquiries indicates that the company has not yet provided an official statement or clarification regarding Fidelity Investments’ recent markup of its fair value.

The slight markup in Meesho’s valuation, even though it’s a small increase, comes shortly after the e-commerce platform reported achieving profitability on a profit-after-tax (PAT) basis in July.

Dhiresh Bansal, Meesho’s Chief Financial Officer (CFO), mentioned to Moneycontrol that the PAT was in the low single digits (in terms of crore rupees, the Indian currency), but he didn’t disclose the precise figure. He also noted that the company still has a considerable way to go before establishing a consistent trend of profitability.

This disclosure about turning profitable indicates a positive milestone for Meesho, reflecting a potential improvement in its financial performance. However, the CFO’s statement about the company’s profitability trend suggests that achieving consistent and sustainable profitability is an ongoing goal that requires continuous efforts.

Startups, particularly in the e-commerce sector, often prioritize growth and market share over immediate profitability, opting to reinvest their revenues to fuel expansion. Achieving profitability, even if on a smaller scale, can be seen as a step towards financial stability and a more mature business model.

It will be important to monitor Meesho’s future financial reports and announcements to understand how the company progresses in terms of profitability and how its valuation and investment landscape evolve over time.

The provided information offers valuable insights into Meesho’s financial trajectory and future plans. Despite expecting steady performance throughout the remainder of the year, Meesho may not end the fiscal year 2024 (FY24) with a profit.

The company’s Chief Financial Officer, Dhiresh Bansal, indicated that even if the monthly profit-after-tax (PAT) figures remain consistent, they might not aggregate to a significant sum due to Meesho’s scale. In the previous fiscal year, FY22, Meesho recorded significant losses of approximately Rs 3,251 crore against a revenue of nearly Rs 3,232 crore.

However, there has been improvement in its financial health in FY23, according to Bansal. He stated that Meesho’s revenues experienced a robust YoY growth of about 60 percent, while its losses narrowed by 50 percent compared to FY22. It’s important to note that the company’s accounting books are still undergoing auditing, and the final numbers could differ from these preliminary figures.

Despite the ongoing losses, Meesho still holds $400 million in its bank accounts and is exploring opportunities for potential acquisitions among smaller players. The company had previously expressed intentions to consider an initial public offering (IPO) if it achieved profitability.

However, Bansal mentioned that this IPO goal is still at least 12 months away. He emphasized the company’s desire to establish a strong track record of both profitability and sustained growth before venturing into the public markets.

In terms of cash management, Meesho’s monthly cash burn has notably decreased by 90 percent to approximately $4 million. This indicates a significant improvement in its expenditure efficiency.

Notably, the report also highlighted that another US-based Asset Management Company (AMC), Baron Capital, has adjusted the fair value of fintech unicorn Pine Labs and food tech decacorn Swiggy. This follows previous markdowns of these companies in prior quarters, showcasing the dynamic nature of valuation adjustments in the startup ecosystem.