Rise and fall of Paytm || Why Paytm Is falling?


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In today’s video, we look at the reasons why Paytm's (India’s biggest ever) IPO crashed and failed.


Paytm’s underwhelming IPO subscription: Last year in 2021, Paytm made history when they launched India’s biggest ever IPO – raising ₹18,300 crore at a valuation of around $20 billion. There was a lot of excitement – as Paytm was following the success of Zomato and Nykaa’s IPO – which both came close to doubling their investors’ money. On the other hand, Paytm’s stock prices were down 27% on the day it was listed on the Indian stock markets, and at the time of my filming this video they’re down more than 70% from their IPO price. Unlike Zomato and Nykaa which were oversubscribed 38X and 82X respectively, Paytm’s IPO was barely oversubscribed - just 1.89X. And that was the first sign that perhaps Paytm had miscalculated people’s level of enthusiasm for the company.

Paytm’s Chinese connection: Paytm raised a total of ₹18,300 crore during their IPO, and ₹8,300 crore of this was primary shares - meaning these were first-hand, brand shares issued by the company. But then, the remaining ₹10,000 crore were secondary shares. These means that these shares have already been held by someday else, one of Paytm’s stakeholders, who is now taking the IPO as an opportunity to get rid of those shares. In other words, more than half of Paytm’s IPO shares were essentially created by Paytm’s old investors jumping ship. And then, one other variable here was Paytm’s ownership - specifically, the nationality of some of the company’s key stakeholders and what that represented. See, Paytm had raised a lot of money from Chinese investors: Alibaba and Ant Group owned 6.8% and 27.9% of Paytm respectively before the IPO, and Ant Group specifically was selling shares worth ₹5,000 crore, that’s half of all of the secondary shares that Paytm was selling to the public.

Understanding Paytm’s stagnating and complex business model: The demonetisation happened in November 2016, and Paytm was all set up to capitalise on this event - their user base went from 125 million to 185 million in three months, and by the end of November of 2017, a year after demonetisation, they had 280 million people on their platform. Things were going great for Paytm, but what they failed to realise or perhaps chose not to acknowledge was how precarious this wallet business was - all it would take was an alternative that didn’t require the additional step of setting up and putting money into a wallet, and Paytm would become obsolete. And that’s exactly what happened. UPI allowed users to transact without wallets - they could pay directly from their bank accounts using QR codes and UPI IDs. Suddenly, a huge part of Paytm’s business was wiped out, and while they have since conceded and joined the UPI market, competing with the likes of Google Pay and PhonePe, they’ve also had to start finding new ways to make money.

Paytm Payments Bank debacle: Now, it is worth noting that things haven’t been all bad at Paytm. Yes, they are into a lot of loss-making businesses, but Paytm Payments Bank is one venture that has been consistently profitable and growing for the last three years. Their Chinese investors, Alibaba and Ant Group, still own around 31% of Paytm, and specifically, when it comes to Paytm Payments Bank, they own 15%. And this is a serious cause for concern - just last month, in March of 2022, the RBI stopped Paytm Payments Bank from onboarding new customers. On the day that this news came out, Paytm’s stock fell 14%, and later, a report by Bloomberg said that RBI had punished Paytm Payments Bank for sharing the data of its customers with their Chinese investors.

Will Paytm survive: Paytm still doesn’t have a clear game plan - they’re still trying to figure out how to turn their huge user base into paying customers. They’ve diversified into consumer lending, gaming, online wealth management, and insurance, but to investors, these don’t look like strategic initiatives, these look like Paytm throwing things at the wall to see what sticks. In other words, investors smell desperation. According to the Macquarie report, Paytm still spends around ₹2,613 to acquire every new customer and only end up earning ₹556 from these customers - that’s lifetime customer value. They’re spending more than 4X what they’re earning from their customers, and it doesn’t look like they know how to fix this problem.


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