Over the past year, as the funding winters kicked in, there has been a significant tectonic shift in priorities of BIG valuation startups in India.
When before the priority was category creation and growth at all costs and the norm was massive marketing spending to improve brand awareness. Today, the winds have shifted, and most founders are strangely singing the tunes of profitability!
These are just a few examples!
- While Unacademy racked up Rs. 144 crores in losses, the founder and CEO Gaurav Munjal clearly stated last year — "Winter is here, must focus on profitability".
- Paytm just witnessed their first operating profits quarter after losing Rs 142 Cr in FY22.
- Zomato and Swiggy are both racing on to cut down the burn and reach profitability.
World's most valuable ed-tech platform BYJU'S is eyeing the same goal. In FY21, BYJU'S booked a loss of a staggering Rs 4564 crores! But, in a recent conference, BYJU's founder strongly proclaimed that "the worst is behind us (for BYJU'S)" and it would turn profitable in either this quarter or the first quarter of FY24.
But, how are these multi-billion dollar startups planning to achieve this? Well, the recent layoffs are a consequence of this goal.
But, BYJU is doing something interesting! They are planning to cut down their most significant marketing spend. Let's do a fun analysis of BYJU'S decision to stop its sponsorships with BCCI, ICC and FIFA and figure out the impact of this decision on the startup!
How is BYJU'S doing financially?
BYJU'S is infamous for being the most valued ed-tech in the world. It has raised a total funding of $5.8 billion in just 11 years of existence and reached a valuation of $22 billion!
Since, its launch in 2011, BYJU'S has evolved from being a simple K-12 learning platform to a multi-level mammoth that is selling products, loaning funds, spending billions on acquisitions and handling not one but many loss-making companies.
But, today our goal is to analyse BYJU'S way to profitability. And, for that, we will have to consider the basics. So, let's dive into BYJU'S financials in the last couple of years.
Revenue ➝ Rs. 2189 Cr
Profit/Loss ➝ (-) Rs. 305 Cr
Expenses ➝ Rs. 2873 Cr
Revenue ➝ Rs. 2280 Cr
Profit/Loss ➝ (-) Rs. 4564 Cr
Expenses ➝ Rs. 7027 Cr
So, in the financial year 2021, BYJU's revenue increased by a mere 4% while its expenses increased by 2.4 times and losses by ~15 times. But, this was almost 2 years ago.
Last year in FY22, BYJU'S apparently posted a gross revenue of Rs 10,000 Cr. The complete financial statement for FY22 is yet to come out.
But, if we were to analyse BYUJ'S numbers from FY21, 2 things are completely clear
What's the main revenue source? ⇒ Edutech Product Sales
- 81% of its revenue is generated by the sale of its edutech products. The total revenue for this category stands at Rs. 1848 Cr. So, these product sales are basically contributing most to BYJUS's business.
What is the main expense? ⇒ Employee Benefits & Advertising and promotional expenses
- These 2 expenses account for ~60% of BYJU'S total expenses. It's hard to comment on employee benefit expenses, so for the sake of this article let's focus on advertising and promotions.
- BYJU'S spent a whopping Rs. 1943 Cr on ads, which is 32% of their total expense.
So, let's focus mainly on these 2 areas.
The BIG Decision: How does BYJU'S plan to reduce the burn?
Now, internally there are quite a few things BYJU'S can do to reduce its expenses. But, BYJU'S most significant advertising expense is its years of spent on sponsoring cricket and other sports tournaments.
- BYJU'S spend $55 million, that is Rs 454 crores on BCCI sponsorships.
- It spent Rs 130 crores on ICC sponsorships.
- And, it spent ~$40 million or Rs 330 crores on the recent FIFA world cup sponsorships to develop its overseas business and increase its foothold in markets like Mexico and Brazil.
That's approximately a total spending of Rs 900 crores on just the sports-related sponsorships. But, showing how serious BYJU'S about its profitability goal, it has decided to not renew its 3 branding partnerships with BCCI, ICC and FIFA!
But, the question is will it positively or negatively impact BYJU'S business?
To understand that we will have to figure out how significantly these sponsorships contributed to BYJU'S main business, which is the sale of edutech products.
The impact of BYJU'S sponsorships
Now, BYJU'S uses a hybrid sales strategy to sell its edutech products. They do door-to-door sales, for which they were recently flagged for misselling. And, they also acquire users online and take them through their sales funnel.
So, exposure to BYJU'S ads online can help get these users.
- Now, BYJU'S runs classes for students in the KG class to the ones giving IAS, GATE and CAT.
- So, their target demographic ranges from ~5-year-olds to ~40-year-olds (since CAT and GATE have no age limit). Negating children from this demographic, let's say BYJU'S paying customer's target is from 15-year-olds to ~40-year-olds.
- Now, let's consider the most significant tournaments last year.
ICC T20 World Cup
- The T20 World Cup attracted 229 million television viewers in the first week of tournament from India.
- If we consider the IPL, approximately 40% of the total viewers fall in BYJU'S target age group.
40% of 229 million = 91.6 or ~92 million
So, BYJU'S misses exposure to ~92 million viewers in just the first week of tournament.
- Considering an ad conversion rate of 0.7%, BYJU'S misses out on 0.7 % x 92 million = 644K conversions
- BYJU'S paying user conversion rate = paying users/ total users= 6.5M/100M x 100 = 6.5%
So, 6.5% x 644K = 41,860 users
- Considering total spending of Rs 130 crores on ICC sponsorships, their customer acquisition cost stands at => Rs 130 crore / 41860 => Rs. 31,055/user!
FIFA World Cup
- Fifa World Cup Finals India viewership in 2022 in India stood at 32 million.
- 75% of all FIFA viewers were college students. So, let's say ~90% of Fifa viewers fall in BYJU'S target segment. That's a total of 28.8 million unique viewers.
- Considering the same 0.7% conversion rate and 6.5% paying users BYJU'S possibly misses out on => 0.7 % x 6.5% x 28.8 million = 13,104 paying users
- But, considering total spending of Rs 330 crores on Fifa, their customer acquisition cost stands at => Rs 330 crore / 13,104=> Rs. 2,51,831/users!
Clearly, BYJU'S customer acquisition cost is super high.
But, will it help?
Now, this decision would directly hit its brand exposure.
The cancellation of the FIFA deal is specifically more surprising, because just a few months back, BYJU'S had signed Messi and the deal to capture overseas markets that are growing twice as steadily as India. For instance, the US and Middle East in FY21 made BYJU'S Rs. 1292 Cr in revenue.
But considering BYJU'S high customer acquisition cost for these sports tournaments, it would be wise for it to find more lucrative ways to acquire customers.
BYJU'S founder Raveendran is not at all worried about the decision of closing these sponsorships. He believes that BYJU'S has already achieved brand awareness and no longer needs such high exposure.
Financially, this is a welcomed decision and the right step towards profitability. But, the hype created by innovative ads dies down soon in fast-paced economies like India. It's difficult to quantify exactly how many people will forget about BYJU'S if they don't see its name repeated in every match. But, for BYJU'S sake, we hope it's not much!