Paytm is having a tough year
2024 may ultimately be remembered as the year when Paytm’s regulatory travails got real. Ever since the Reserve Bank of India (RBI) effectively forced the shutdown of the company’s payments bank earlier this year, Paytm has been endeavoring to convince investors it has a viable way forward. In some ways, the company is paying the price for an earlier stage of undisciplined growth that strayed from its core payments business and burned cash without delivering significant business breakthroughs.
Paytm’s management has been eager to point out that the company recorded its first profitable quarter in the July-September period. While that is true, the main reason for it is that Paytm sold its ticketing business to Zomato for 13.45 billion rupees. It was a significant sale and helped the Indian fintech giant reach a net profit of 9.28 billion rupees. Yet without the sale of the ticketing business, it is highly unlikely Paytm would have been in the black.
Indeed, its revenue in the September quarter plunged 34% annually to 16.6 billion rupees. It is the second straight quarter of declining revenue for Paytm. In the June quarter, the company’s sales slid 36%.
Looking at the performance of Paytm’s stock, it seems that investors are forgiving. Year to date, the stock is up about 15% and in the past half year it has risen 96%. However, it is important to note that at 742 rupees, Paytm’s share price is still more than 50% below its November 2021 IPO price.
It is also worth noting that key institutional investors have been gradually exiting or paring down their respective stakes in Paytm since 2022. In November 2023, Berkshire Hathaway exited Paytm, selling its full stake in the company for about 13.7 billion rupees through a bulk deal. According to Tech Crunch, Warren Buffett’s company exited Paytm at a loss of about 40% on the investment it made in 2018. Additionally, SoftBank exited Paytm in July at a US$150 million loss.
We will be watching closely to see how Paytm Payments Bank going offline impacts the Indian fintech giant’s lending revenue, which is crucial to its growth and was already set to fall following a decision by the RBI last year to raise the amount of capital that banks and non-bank lenders need to set aside to cover potential defaults when providing personal loans.
