Instamojo, a platform which allows users to buy and sell their digital goods, has said that it is close to cashflow break-even. In a blog post, its Founder and CEO Sampad Swain writes that “We are at a stage where we can think profitably without making a trade-off between business growth and our burn rate. In simple words, we will continue posting strong growth numbers Q/Q without compromises.”

Where have I heard this before? Typically about Info Edge owned marketplaces: it’s something the company used to say often about 99Acres, before competition started heating up, and even Jeevansathi; more recently, we heard similar comments from them about Zomato. What’s interesting here is that the business reaches a level where profitability depends on an increase or decrease in marketing spends. Swain writes, on customer acquisition costs: “Unlike many other businesses, Instamojo’s growth is not hinged on advertising & marketing to acquire users. We depend on WoM (word-of-mouth) and referrals which is purely derived from the inherent network effects which our platform enjoys.”

“As we add more merchants to our platform, we expect our CAC (customer acquisition costs) to go close to Rs 0 (currently at low double digits) which is a huge competitive advantage and perhaps our absolute economic moat,” Swain added.  From the blog post, Gross Margin is up 191%, Contribution margin is up 565%. Operating margin is up 93%. 4% increase in expenses. -57% decline in advertising and marketing spend. 76% decline in customer acquisition costs.

That close-to-profitability scenario likely to change once competition increases for Instamojo, and the present is no guarantee for the future, especially in the space where Instamojo is. Easy storefronts for merchants is a space Flipkart ought to look at (probably with Ebay India), and Paytm probably will.

What matters for Instamojo is its relationship with its merchants: they’re there, and I can say this because MediaNama uses Instamojo, because of how easy the platform is to use, and their responsiveness to merchants. That they have over 250,000 registered merchants is exceptional, and signups have increased 106% year on year. During the year, the company introduced support for subscription services and integrate UPI payments with ICICI Bank. It also opened up its merchant services “app store” to third party applications.

The growth-driver that Instamojo needs is a marketplace which aggregates its merchants, and gives users something to discover: it is etsy without the consumer-facing “discover something cool and quirky” interface. It has reported a 211% growth in total payment volume, 178% growth in total transactions. With a marketplace, and some marketing spends, that is going to increase. Remember that Instamojo costs are low because they rely on the merchant to market storefronts. Bring on the competition, and they’ll feel the pressure: Merchants will go wherever they get transactions; Instamojo’s marketing spends are likely to go up then, and it will be difficult to compete with larger players without the additional funding.

What’s also worth remembering, and I wonder if this is what brought on this disclosure of annual performance, is that Instamojo hasn’t raised funds for a long time. The last we heard of was in November 2014.