Mohalla Tech Faces Fiscal Challenges with 72% Surge in Net Loss Despite Revenue Upswing

In its latest financial disclosure, Mohalla Tech, the parent company behind social networking platforms ShareChat and Moj, revealed a 72% increase in net losses, amounting to Rs 5,144 crore for the financial year ending March 2023. However, the company had witnessed a substantial 59% surge in operating revenues, reaching Rs 553 crore during the same period. This financial turbulence is primarily linked to a non-cash write-off related to acquiring rival short video platform MX Takatak.

Implications of MX Takatak Acquisition and Write-Off

The acquisition of MX Takatak played a huge role in the increase in net losses as Mohalla Tech grappled with a non-cash write-off. This write-off was necessitated by the non-fulfilment of the deal’s terms, leading to an accelerated amortisation of intangible assets within a single year instead of the initially planned two years. The total consideration for the MX Takatak deal reached Rs 1,838 crore, with Rs 1,609 crore being paid and the remaining withheld due to non-compliance with deal terms. Subsequently, ShareChat strategically shut down MX Takatak, channelling its user base towards the Moj app.

Notable Expenditures Beyond MX Takatak Acquisition

Beyond the challenges associated with MX Takatak, Mohalla Tech faced heightened expenditures across various fronts. Cloud computing expenses, encompassing server rentals, surged by 21% to Rs 1,022 crore. Additionally, employee expenses witnessed a significant uptick of 38%, totalling Rs 698 crore, while content development costs increased by 50% to Rs 633 crore. However, the company managed to curtail business promotion expenses, the most substantial cost item from the previous fiscal year, by 50%, reducing it to Rs 564 crore.

Future Outlook and Strategic Measures

Looking ahead to the financial year concluding in March 2024, Mohalla Tech aims for revenues ranging between Rs 850-900 crore. However, the company anticipates incurring a cash loss in the range of Rs 800-1,000 crore during this period. Chief Financial Officer Manohar Charan highlighted these projections, shedding light on the strategic measures implemented to tackle financial challenges.

Workforce Reduction and Leadership Changes

Earlier this year, ShareChat made headlines with a substantial workforce reduction, involving over 20% of its employees, totalling 2,200 individuals. Co-founders Farid Ahsan and Bhanu Pratap Singh also parted ways to launch a new startup, while Founder CEO Ankush Sachdeva continues to spearhead the company.

Revenue Diversification and Break-even Strategies

In a bid to enhance financial stability, Mohalla Tech executed several strategic manoeuvres to curb its cash burn. These initiatives included employee layoffs, discontinuing non-revenue-generating experiments, and the closure of subsidiaries such as fantasy gaming platform Jeet11 and MX Takatak. The company also optimised its cloud infrastructure expenses, contributing to an overall improvement in its financial standing.

Analysis of Revenue Streams

As of March 2023, Mohalla Tech derives revenues from two primary sources: chatroom and advertising. Chatroom revenue, fueled by virtual gifting through ShareChat Coins, experienced remarkable growth, constituting 51% of the company’s revenue in March 2023, compared to 34% in March 2022. Advertising revenue generated from brands and companies also recorded a 20% year-on-year increase.

Surge of Chatroom Revenue

Chatroom revenue, primarily driven by virtual gifting, showcased substantial growth:

– March 2021: Rs 3.44 crore

– March 2022: Rs 120.5 crore (3,400% year-on-year increase)

– March 2023: Rs 284.4 crore (136% year-on-year increase)

The Significance of Virtual Gifting

Virtual gifting, facilitated by ShareChat Coins, empowers users to reward their preferred content creators or live audio chat room hosts. These digital tokens can be converted into cash and transferred to bank accounts, with ShareChat receiving a platform fee during the transaction. This user-generated revenue has proven instrumental in helping the company break even.

Mohalla Tech now grapples with a complex financial scenario marked by a substantial surge in net losses. The company’s strategic measures, workforce adjustments and a focus on expanding revenue streams, mainly chatroom revenue via virtual gifting, are pivotal elements in its pursuit of financial sustainability and profitability.