Rs 80,000 crore digital ad pie: Karan Taurani spots a hidden profit lever in new-age stocks

India’s new-age internet companies may be sitting on a profit engine that investors are still not fully pricing in: advertising.

With India’s digital advertising market already at around Rs 80,000 crore and commerce-led platforms accounting for roughly Rs 20,000 crore of that spend, Karan Taurani, Executive Vice President at Elara Capital, sees retail advertising emerging as one of the biggest drivers of earnings for businesses ranging from Blinkit and Nykaa to Meesho. He estimates that advertising could account for 60-80% of EBITDA for several platform businesses, while much of the incremental profit growth over the next few years could also come from this high-margin revenue stream.

The shift comes as India’s internet companies move beyond the cash-burning phase that defined their early years. Customer habits have been established, competitive intensity is easing in some categories, and the market is increasingly rewarding companies that can demonstrate a credible path to profitability rather than merely chase scale.


In an interview, Taurani explains why advertising could become the next major rerating trigger for new-age stocks, what separates sustainable platform businesses from discount-led models, and how he views the outlook for Blinkit, Nykaa, Meesho and Urban Company.

Edited excerpts from a chat:

The market was full of doubts when new-age internet businesses got listed a few years ago and now their acceptance has become more mainstream. What changed in the last 3-4 years?

Karan Taurani: Two things have changed. One — in many of these categories, when they took off, you saw a massive amount of discounting, and the unit economics didn't turn favorable. They were making "happy losses" because they had to build the category and build the habit — consumers didn't originally want things in ten minutes, but now that habit has been created and there's almost an addiction to it. Going back to two-hour or six-hour delivery is now tough for the customer. So we believe every customer habit, once created, is largely irreversible — but creating it requires heavy investment, and most of these companies are still in that investment phase. That's what led to the losses.

Secondly, the competitive intensity has reduced. A number of players came into quick commerce; some bet on execution, others bet purely on pricing. When you have players betting purely on pricing and burning capital on discounts, the good executors also face a challenge — we saw that play out with Blinkit, for instance.

As we speak now, things are improving on both fronts. The habit is created and customers aren't reverting. In fact, other categories (apparel, beauty and personal care) are now moving onto quick commerce as lower delivery times become a big habit across categories. Second, the players who were burning money and playing purely on pricing — Zepto, Swiggy Instamart, and so on — have taken a step back. Because of these two reasons, the belief that profitability and favorable economics are sustainable for these internet platforms is now here to stay.

One more reason: most of these platforms go through a transition phase. We've done data work showing that globally, in the first ten-to-fifteen years, most companies make hefty losses to build the habit — Amazon, and others took at least eight-to-ten years to break even and move toward profitability. India hit that inflection point last year, as many of these platform companies were in their tenth-to-twelfth year of operation.

India also has a structural growth tailwind: our e-commerce/digital penetration is only about 8-9% versus 15-25% globally, so there's room to grow — provided we don't see another large competitor come in and play purely on pricing/deep discounting, which doesn't seem likely right now since cost of equity and cost of capital have risen globally. The era where private capital was abundant and companies could freely burn money on discounts is largely behind us for now.

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You cannot bundle all new-age companies in one bracket as their business models and even industries are different. As an analyst, what metrics would you use to assess all these platform companies?

Karan Taurani: As an investor, one should bet on platforms that actually have a track record of execution — you can't just bet on pricing. Second is the people behind it — the expertise and experience they bring.

Third, most of these platforms now have a very big lever in advertising revenue. Globally, even for a company like Amazon, over 100% of e-commerce EBITDA is driven by advertising revenue, and India is going to mirror this trend. Something like Blinkit, Zomato/food delivery, or even Nykaa — close to 60-80% of their EBITDA is also being driven by ad revenue. This is happening because of a broader shift from traditional to digital advertising over the last five years; and within digital, spend has moved from social/search to video, and now — given the conversion rates being seen — commerce/retail advertising is becoming a very big profitability lever.

Companies don't disclose these numbers publicly, but my assessment: Blinkit is currently making losses overall, but going forward it could command 60-70% of its EBITDA from ad revenue. Blinkit's ad revenue today is roughly ₹3,000 crore; even at a moderate ~30% growth rate over the next couple of years, that's a couple of thousand crores of incremental ad revenue — meaning 80-90% of the incremental EBITDA build for these companies will come from ad revenue growth, driven by the higher conversion these platforms achieve.

For Nykaa, ad revenue is in the region of ₹600 crore, which is also close to 75-80% of EBITDA in the BPC segment. Ad revenue is going to be a very big lever that all these platforms will thrive on.

For platform companies that are yet to report free cash flow, how big a trigger can advertising revenue be? Is this already "priced into" the market?

Karan Taurani:I don't think ad revenue is fully priced in, because there's genuine doubt about how it will play out — take Meesho, for example, where advertising is a big lever in their move toward turning economics favorable, but there's uncertainty on execution.

On market size: overall digital ad spend in India is roughly ₹80,000 crore. Of that, Amazon, Flipkart and all the quick-commerce/e-commerce players put together account for roughly ₹20,000 crore — a sizable chunk of the overall digital ad market, which itself is growing at around 30%. Everyone wants a piece of this because the market itself is growing fast. I think social/search ad spend is going to see real pressure as budgets shift toward e-commerce/quick-commerce/platform (retail) advertising — and potentially, in the future, AI-led advertising too (we've already seen ChatGPT announce ads).

You mentioned platform/e-commerce companies hit an inflection point last year. Can you elaborate?

Karan Taurani:Yes, roughly last year, because many of them were in their tenth-to-twelfth year of operations. Generally the pattern is: companies first create the habit and burn hefty losses; then there are cycles where the cost of capital goes up and they can't raise money as easily as they could five years ago. Most of these platforms really started their real journey in the post-COVID era, when capital was largely available for free. Now the real test is which companies can stand out on improving profitability and economics — that will drive investor interest going forward.

There aren't many comparables here, so the differentiation shows up in valuation multiples. For example, Blinkit today, as per market cap, is valued far higher than Swiggy — even though Swiggy is a similar business, only about 40-50% smaller in scale — simply because Swiggy's economics haven't turned favorable yet. The market is moving away from valuing companies on EV/Sales or Market Cap/GMV; it's now giving a massive premium to companies executing on profitability and a steep discount to those that aren't. What's building into Meesho's valuation right now is essentially its path toward profitability.

Meesho is a very interesting business model for two reasons: one, its capital intensity is very low — it doesn't invest in dark stores or inventory, and doesn't own its own delivery fleet; it works with partners, so it's a capital-efficient model. Even if it turns EBITDA-profitable, you won't see it generate massive free cash flow. Its advantage is a very fragmented base of sellers — India has too many SMEs and sellers who want to go online, and Meesho is a one-stop shop for that ambition, while also being able to save on logistics costs given its scale. With more automation, robotics and technology investment, logistics costs should come down further.

In fact, logistics/fulfillment cost per order is a big drag for all these platforms — typically 15-25% of overall cost, of which roughly 80% is labor and 20% is fuel. With the EV penetration we're seeing on the ground now, fuel costs should come down meaningfully. So logistics costs coming down — through automation, technology and the EV shift — is probably a big driver of improving unit economics for platforms and logistics companies alike.

Talking about logistics costs for Meesho, do you think product returns are a big problem for them?

Karan Taurani: We think returns are becoming less of a problem than they used to be. Their slippage/return rate is gradually coming down, though returns are inherent to any apparel-led business, since apparel purchases are driven by passion/impulse — which is exactly why Meesho is expanding into other categories. Beauty and personal care is one category with the lowest returns among the newer categories they're expanding into, so the focus is shifting away from apparel-only.

Meesho will likely coexist with other large horizontal players because India is a large, fragmented market and Meesho largely serves the lower-end/value customer. That does expose Meesho to an inflation risk — if inflation rises meaningfully, the income levels of Meesho's customer base take a hit. Second, because Meesho's AOVs are quite small, logistics cost as a percentage of AOV is the largest cost component for them — upward of 25%, versus roughly 15% for a category like food delivery. So logistics cost is a meaningful risk if it doesn't keep coming down.

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How big a threat do you see to a company like Nykaa from quick commerce platforms, including Meesho and Blinkit?

Karan Taurani: What works in Nykaa's favor is its premium positioning — Nykaa's average order value on the BPC side is around ₹2,500, versus around ₹700 for the same online BPC category on larger horizontal platforms like Amazon/Flipkart. People currently aren't ordering premium BPC products on quick commerce.

That said, quick commerce has had some negative impact. Nykaa's market share has fallen from around 31% to around 27% over the last five years, partly — though not primarily — because of quick commerce. In that period, quick commerce's share of online BPC rose from around 2% to around 16%, while Nykaa's share fell by only about 4 percentage points — which shows that quick commerce has actually taken more share from the offline/modern-trade channel and from other e-commerce than it has from Nykaa specifically. We believe quick commerce's share gains in online BPC will plateau over the next three years, after which Nykaa could start clawing back share.

A useful global data point: specialized beauty and personal-care platforms globally have maintained around 20% market share over the last five years despite e-commerce's rise. We think quick commerce could reach around a 30% share of online BPC over the next three-to-four years, but a large part of that will come at the cost of existing e-commerce players — who are essentially trying to deliver the same products within 30 minutes — rather than at Nykaa's expense.

Nykaa is one of the few companies that has consistently reported above-20% revenue growth. What’s working in their favour?

Karan Taurani: A couple of reasons. First, Nykaa's transacting customer base is still small relative to India's roughly 35 crore online shoppers, so there's a long runway — Nykaa caters to the premium end of that base. Second, this growth has tracked the fast growth of India's premium smartphone user base — roughly 10 crore users (about 6 crore iPhone users and 4 crore premium Android users), which has grown at a 25-30% CAGR over the last five years and should keep growing at around 20%+ going forward. Nykaa is playing on this premium smartphone user base, which isn't being impacted by inflation on income levels, and continues to spread and grow. It doesn't have to cater to the low-end audience. Finally, Nykaa already has a meaningful — around 55% — revenue exposure to non-metro markets, which shows the premium BPC model is scalable beyond just metros.

Given how different these platform business models are, how do you go about valuing them — what are the key metrics you look at, given traditional metrics don't apply cleanly?

Karan Taurani: It really depends on the lifecycle stage of the business. Based on work we did last year on the profitability inflection point, every company needs to be evaluated on where it sits on its lifecycle: for roughly the first five-to-ten years, you value on an EV/Sales basis, since profitability is a long way off; but after ten years, the economics need to turn positive — if a business model hasn't shown positive economics in ten years, it's unlikely to suddenly change in another five.

So, broadly: first five-to-ten years — value on EV/Sales; then move to EV/EBITDA; then eventually PE. Looking at where the market is pricing companies today — Blinkit and Zomato/Eternal, for example, have already moved to PE-based valuations. Companies that are still purely on an EV/Sales basis — as we saw with Zepto — aren't getting any premium multiple. The market needs either a clear trajectory or explicit guidance on profitability before it will assign an EV/EBITDA or PE multiple.

For companies where there's no visible path to profitability yet, valuation becomes a real concern. Take Urban Company — the core business is doing very well, but its InstaHelp vertical is still making losses, as the market is essentially building a new category there. If InstaHelp is able to create that habit with the customer over the next three years, it could become a "Blinkit moment" for the stock — but they have to execute on the profitability path they guide to; they can't keep burning cash for ten years. Even a single quarter of visibility on InstaHelp reaching breakeven within the next couple of years would be a major positive trigger for Urban Company.

This lifecycle lens also applies to how long habit-creation itself takes: when quick commerce started, the challenge wasn't "will people shop online" — it was creating the habit of wanting a product within fifteen minutes, and that took roughly four-to-five years. You have to value these businesses based on where they sit on that lifecycle and what their actual moat is — you can't bet on pure pricing plays, because those businesses aren't sustainable. You can give discounts for two-three years (as happened in food delivery too), but you eventually have to move to more favorable economics.

How strong is the consumption demand in India right and what is the impact of GST rate cuts that you have seen in the last one year?

Karan Taurani: We believe consumption in India has stayed strong partly because of the ripple effect of the GST rate cuts (which came in around September-October last year). Initially, the positive impact was visible mainly in auto and durables, where customer savings were highest — we estimate the overall benefit to consumers at around ₹96,000 crore. Consumers typically allocate roughly 30% of their wallet to discretionary spending, and of the incremental savings from GST, we expect 60-70%+ to flow into discretionary categories, since people don't redirect savings into things like higher rent or healthcare — they spend it on discretionary items. Within discretionary categories like apparel, food and travel are now starting to see this positive impact with a lag, and company guidance for the next three-to-six months looks extremely strong.