India's new-age internet companies may be sitting on a profit engine that investors are still not fully pricing in: advertising. According to The Economic Times, Karan Taurani, Executive Vice President at Elara Capital, estimates that advertising could account for 60-80% of EBITDA for several platform businesses, with much of the incremental profit growth over the next few years coming 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, with customer habits now established and competitive intensity easing in some categories.
India's digital advertising market is already at around ₹80,000 crore, with commerce-led platforms accounting for roughly ₹20,000 crore of that spend. As reported by The Economic Times, the overall digital ad spend is growing at around 30%, with social/search ad spend facing real pressure as budgets shift toward e-commerce/quick-commerce/platform advertising. Companies like Blinkit currently generate ad revenue of approximately ₹3,000 crore, with even moderate 30% growth over the next couple of years potentially generating thousands of crores of incremental ad revenue.
According to The Economic Times, most of these platforms are now in their tenth-to-twelfth year of operations, hitting an inflection point where unit economics are turning favorable. The market is moving away from valuing companies on EV/Sales or Market Cap/GMV, instead giving massive premiums to companies executing on profitability. Companies like Blinkit and Zomato/Eternal have already moved to PE-based valuations, while those still purely on EV/Sales basis aren't getting premium multiple assignments.
As reported by The Economic Times, Nykaa maintains premium positioning with average order value of around ₹2,500 versus ₹700 for larger horizontal platforms, while its transacting customer base remains small relative to India's 35 crore online shoppers. Meesho benefits from low capital intensity, working with partners rather than owning inventory or delivery fleet, though it faces challenges with logistics costs as a percentage of AOV being over 25% versus roughly 15% for food delivery.
According to The Economic Times, consumption demand in India has stayed strong partly due to GST rate cuts providing consumers with approximately ₹96,000 crore in benefits. The lifecycle approach to valuing platform businesses suggests companies should be evaluated differently based on their stage: EV/Sales for first five-to-ten years, EV/EBITDA for ten-plus years, and eventually PE. Companies without visible profitability paths face valuation concerns, with Urban Company's InstaHelp vertical requiring clear trajectory to breakeven within the next couple of years.
