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Investing in Paytm is a good idea because the company is poised to become a major player in the internet world. This is because the company offers a wide variety of products and services for its customers, including payment services and shopping sites. However, there are several things that you should keep in mind before making the purchase. These include the company’s profitability and diversification. In addition, it is important to know what the company is doing in terms of market capitalization and the business that the company is running for its merchants.
Profitability
During the initial days of trading, One97 Communications’ valuation tanked to $14 billion. On the first day of trading, shareholders took a loss of $6 billion. One97 Communications has not reported any net profit to date. Its valuation is based on a DCF valuation. It uses a valuation model that bakes in rising costs of capital, as well as a cost of equity of 18.5%.
JP Morgan values Paytm based on a 20x exit multiple. The company’s margins are improving due to rationalization of processing costs and scale-up of merchant devices.
Goldman Sachs also believes that Paytm has the potential to transform into a financial services firm. However, it also says that Paytm is working in too many segments. It is therefore a challenge to generate positive free cash flow by the end of the FY30 period.
Macquarie also believes that Paytm is a cash guzzler. It cut its target price for the stock to Rs 1200, a discount of 40% from its issue price. It has also initiated a hedge against One97 Communications. This hedge has the potential to reduce Paytm’s equity exposure by over 30%.
Goldman Sachs has maintained its Buy rating on Paytm. However, it expects 50% growth in revenue in the next few quarters. The company has a market share of 40 percent in the merchant-to-consumer segment. Paytm has also started cross-selling on its platform.
Paytm is also considering a profitability plan. However, it is unlikely that this will be reflected in the company’s financial performance for a while. It is also unclear whether the company’s profitability will translate to a positive cash flow. It has also used nearly 70 percent of its equity capital to fund losses.
However, Paytm is a well-positioned company to capture digital payments trends. It has 22 million merchants and 50 million active consumers. It also has a platform leverage. Moreover, the company has added three lenders in the last twelve months.
Despite its difficulties, Paytm has raked in equity capital of Rs 19,000 crore since its inception. It has also spun off numerous businesses, including insurance. It has also partnered with HDFC Bank, India’s largest private sector lender.
Market capitalization
IPO valuation of Paytm has come down drastically since its listing in November last year. The market cap of Paytm is now Rs 41,592 crores, which is a mere 1% of its IPO valuation of Rs 1.26 lakh crores. The market cap of Paytm stock is directly influenced by its outstanding shares.
Paytm is a technology company that enables utility payments, digital goods, insurance, loans and mobile recharge. The company is backed by Alibaba Group Holding Ltd and SoftBank Group Corp.
Paytm’s revenue and net loss rose in the September and December quarters. The company also reported a 90 percent jump in revenue for the December quarter. Nonetheless, Paytm’s net loss widened to Rs 778 crore in the December quarter. The company is expected to continue reporting losses and lose market share to Google Pay and PhonePe.
In November, Paytm raised funds in a fundraising round led by US asset manager T Rowe Price and Ant Financial. Paytm also has a strategic investor – SoftBank’s SVF India Holdings (Cayman) Ltd. The company sold shares for 555 rupees each.
The company has grown from being a digital wallet to becoming a payment super-application. Paytm is the largest payments platform in India and offers e-commerce, insurance, loans and personal finance products. The company is also a lender on its own balance sheet.
Paytm’s marketing expenses have been reduced to restrict the losses. The company’s board includes eight members. However, the majority of the promoters are from abroad. Many veterans have criticized Paytm’s valuation. The company aims to become profitable in the initial years of its operations.
Paytm’s shares have declined by more than 50 percent in the last three months. Analysts have warned that the company may not turn profitable. They also said that Paytm’s unit economics will decline in the medium term. The company is also expected to report negative free cash flow in the next three years.
The company is expected to report a net loss of Rs1,761 crore in the fiscal year. Its gross merchandise value was Rs 4.03 lakh crore in the fiscal year.
Business for merchants
Using big data, Paytm plans to become a super app. Its product portfolio includes insurance, mobile payment, and financial services. It is also a leader in the UPI payments space.
In August, Berkshire Hathaway invested $356 million for a 3% to 4% stake. Paytm has also tapped the Chinese e-commerce giant Alibaba Group for investments in March 2015. In May, Softbank invested $5 billion in Paytm. The company is also in the process of launching a loan segment, and launching its credit card. In addition, Paytm has received backing from Ratan Tata.
Paytm also has a number of other financial services such as mutual funds, pension, and loans. Paytm has also tapped the e-commerce space with Paytm Mall. Paytm’s A to G business model is not common in India.
The biggest drawback for Paytm is its long gestation period. The company’s stock price hasn’t been favoured by the stock market. However, the company has managed to attract merchants and customers with its full suite of payment services. It also has a number of technology solutions that help it stand out. It also has a number of other services to offer, such as an event booking system and a mobile ticketing service.
The company has also launched a number of products and services, including a mobile wallet, a QR code scanner, a POS billing system, and a number of events. It has also managed to attract a number of promoters, most of whom are not from India. It has also received backing from several high profile investors, including Alibaba Group, Berkshire Hathaway, and Mountain Capital.
The company’s marketing campaign incentivizes consumers to recharge through a number of offers. In addition, the company has implemented a fraud management system called PAI. In other words, the newest and most expensive thing at Paytm isn’t actually its most expensive product.
Although Paytm’s product offerings are quite impressive, the company is still in need of improvements. In addition, Paytm is in the market to acquire other companies in order to expand its horizons.
Diversification
Despite a loss of 70% in the last year, Paytm share price target is at a lower level. The fintech firm has diversified into various segments, which have a positive impact on its growth. The company has raised funds from marquee global investors.
Paytm shares are priced at 5.5 times the EV/sales multiple of global peers. However, Paytm’s margins will only increase modestly. Moreover, Paytm will have to invest heavily to optimise its acquisition funnel.
Paytm has diversified into several segments, including ecommerce, lending, insurance, and film ticketing. It plans to raise funds from its IPO of up to $1,6 billion. In addition, the company plans to raise Rs4,600 crore through secondary shares. Its pre-IPO investor is SoftBank, which owns over 17.5% of the company.
Paytm’s business model is different from the other ecommerce companies. The firm has a diversified payments platform, which includes tokenized credit cards, merchant solutions, and a payments bank. The firm’s lending business has disbursed 4.4 million loans in the third quarter, a 1,925% increase compared to the year-ago period.
Paytm has also been adding new lenders. In the last 12 months, Paytm has added three new lenders, including India’s largest private sector lender HDFC Bank.
The Paytm business is also looking to launch credit card and loan segment. This will help the company drive monetization across several segments. The company’s instant personal loan division disbursed 516 Cr in the third quarter, a 1,925% jump compared to the year-ago period.
The firm’s consolidated loss widened from Rs2,942 crore in Q3 to Rs6,446 crore in Q4. The company reported revenue of Rs 1,679.6 crore in the June quarter. The firm attributed the revenue to strong monetization in device subscriptions and device-based payments.
Goldman Sachs has revised its rating on Paytm from neutral to buy, citing the firm’s strong scale, good profitability, and high engagement. Goldman Sachs believes that Paytm’s business model will continue to grow. The firm also expects Paytm to break even by September 2023.
Paytm’s valuation is at a lower level than the global peers. However, the company is well positioned to capitalize on the growth of digital payments. It is backed by China’s Ant Group and Japan’s SoftBank.