Why Paytm Stock/Share is Falling?|Paytm’s Business case study

Why Paytm Stock/Share is Falling?|Paytm’s Business case study Paytm IPO paytm IPO falling What is Paytm’s Business Model? And what are the problems with it? Where is Paytm burning cash? And what will be its impact on the company? 3) What is Paytm’s profitability plan? And is the plan worth it?

Intro to Paytm And its Owner

One night on this February, a Land Rover crashes DCP’s car, And then one guy is arrested. That guy was none other than – Paytm’s Founder – Vijay Shekhar Sharma After his arrest in Feb, problems with him are not stopping. With 18 Billion Dollars of valuation, a startup that was one India’s Most Valuable Startup Today the people who invested in this startup are now facing 70% loss. Vijay Shekhar Sharma always wanted to do something big. And with this motive, he started PayTM. Had anyone thought that a guy who can’t speak English properly, Today that guy will create a company that will create India’s largest IPO? Paytm’s 15,000 Crs IPO was India’s largest IPO after Coal India. Interestingly, the people who invested in this IPO are now going at loss. The question is Why did all this happen with paytm? The company whose stock was at 2150 Rs during listing, What happened that after 6 months its value is hardly 550 Rs? What happened with Paytm that today it is failing so badly? Was Paytm’s stock overvalued? Had Vijay Shekhar Sharma done any scam? Is something going on in the company which we don’t know? Let’s Know…

Complete case study Why Paytm is Falling?

So the story starts in 2010, When Vijay Shekhar Sharma creates One97 Communications company. He never thought that a company started with a small idea will become India’s most valuable startup. The Paytm which we all know today was hardly used by anyone before 2016. Then Demonetization came and everything changed for Paytm. Between Paytm’s IPO announcement date and listing date, Paytm’s stock was trading with 20% Premium in Grey Market. I know you would be thinking that Why did this share fall 27% after 2 days of its listing? Well, To understand this we need to understand these 3 things properly. 1) What is Paytm’s Business Model? And what are the problems with it? 2) Where is Paytm burning cash? And what will be its impact on the company? 3) What is Paytm’s profitability plan? And is the plan worth it?

Startup journey of Paytm

Just imagine that you made an application that processes transaction between 2 persons Then tell me in the comments section how will you generate revenue from it? Any payment aggregator platform will generate revenue from any or from all of these 3 methods.

1) Transaction Fee When anyone will do any transaction through your platform, Then you will charge a transaction fee from him This thing is done by Razorpay as well as Paytm from merchants.

2) Loan Instruments The money taken from depositors will be given as loan to other people or merchants And they can earn revenue from their interest.

3) Advertisements Many companies run their advertisements on a platform like Paytm to sell their products or services.

In return for this, they have to pay some money to the aggregator platforms. Interestingly, Paytm earns revenue from all these 3 ways. In 2020, Paytm generated 3,300 Cre revenue using these 3 ways. But in payment aggregator platforms like Paytm, PhonePe or GooglePay Their biggest expense is their Tech Infrastructure and User Acquisition. The cost to acquire 1 user is 350-400 Rs for Paytm. And what to say about its tech and data storage expenditure. Paytm has raised almost 19,000 Crs in which 13,000 Crs are their losses. After all these losses, only one question arises What about Profitability?

What is the business model/Future of Paytm?

What is the roadmap of the company for profitability? What is the company doing that it can turn profitable in the future? On today’s date, only one this thing is giving Paytm profits. And that thing is – Paytm Payments Bank. Paytm made 29 Crs profit through Paytm Payments Bank in 2020. And in 2021, it became 37 Crs. All this was going but then enters RBI. And RBI bans Paytm Payments Bank. According to RBI’s ban, Paytm can onboard new customers after the ban is removed. The thing which was going to make Paytm profitable is now very slightly possible. So if Paytm had so many drawbacks then why investors were so excited about Paytm’s IPO?

So the answer is hidden in people’s Investment Mentality and Consumer Behavior. Paytm, PhonePe, GooglePay, and in fact BharatPe All these Fintech Startups are more focused on changing consumer behavior rather than profit. Rather than FDs, Stock and Real Estate People are moving towards alternative investment opportunities. Similarly PhonePe, GooglePay and Paytm All these companies wanted to move a consumer from cash to cashless transactions. Once let consumers make a habit of digital transactions, Then we will make profits anyhow. In past, when we used to go out, we carried cash And today we just carry our phones and all transactions are done. Today our consumer behavior has changed. And to change this consumer behavior, all the investors had given them Crs of funding. B’coz if you change one’s consumer behavior then it’s very easy to make profits. But this was not the case with Paytm. We were Savers but now we are investors, which is a good thing. But do you know what the problem is? We copy each other to get high returns.

What are the problems with Business model of Paytm?

The reason is Unjustified Valuation. When PhonePe and GooglePay were not popular at that time, Paytm was the only Fintech King. But as PhonePe and GooglePay started growing, Paytm’s UPI market share started decreasing. Today Paytm is at 1700 Cr loss. Paytm is not able to make profits from Payments Bank or any other thing. But interestingly, the fall in the share price of Paytm is not due to it’s loss. The actual reason behind that is something different. The reason is Unjustified Valuation. Lets Understand it…

Business Analysis of Paytm

So understand this very carefully. During IPO, Paytm’s valuation was 1.39 Lakh Cr Rs. But their revenue was just 3300 Crs. As Paytm is a loss-making company, so you can’t find Price to Earning ratio. In this condition, we need to find Price to Sales Ratio.

Why Paytm is Loosing in Stock Market?

With 3300 Crs revenue and 1.39 Lakh Cr Rs valuation, It’s Price to sales ratio comes out to be 35 i.e. actually very large. Let’s assume Paytm becomes profitable and makes 10% profit, It means from 3300 Cr revenue, Paytm is making a profit of 330 Crs. But interestingly, after 10% profit also, Paytm’s Price to Earning ratio is 400+. So if Paytm wants to give good returns to its investors, Then they have to grow at more than 440% growth rate And this is close to impossible. And if you will see Paytm’s last 2 years’ performance, Then what to talk about 400%, company’s growth rate is hardly 15% Interestingly, Paytm has lots of people’s financial data. For that competitive advantage, Paytm had burned lots of money Is now snatched away by RBI. Recently RBI had launched Account Aggregator Network Initiative. The data collected by any Fintech Company is available to all Fintech startups. It means that any data collected by Paytm can be used by any Fintech Company. Whatever may be the hype of any startup, But we has an investor should know that the public sector market i.e. Stock Market is different from private sector. Whatever be the valuation of any company in the private sector, It can sustain that valuation in public sector only if its fundamentals are strong. Otherwise, Zomato, CarTrade and Paytm are live examples. The people who invested in Paytm’s IPO are now facing 70% loss.

Why Paytm Stock is falling

Complete case study Why Paytm is Falling?

So the story starts in 2010, When Vijay Shekhar Sharma creates One97 Communications company. He never thought that a company started with a small idea will become India’s most valuable startup. The Paytm which we all know today was hardly used by anyone before 2016. Then Demonetization came and everything changed for Paytm. Between Paytm’s IPO announcement date and listing date, Paytm’s stock was trading with 20% Premium in Grey Market. I know you would be thinking that Why did this share fall 27% after 2 days of its listing? Well, To understand this we need to understand these 3 things properly. 1) What is Paytm’s Business Model? And what are the problems with it? 2) Where is Paytm burning cash? And what will be its impact on the company? 3) What is Paytm’s profitability plan? And is the plan worth it?

What is the business model/Future of Paytm?

What is the roadmap of the company for profitability? What is the company doing that it can turn profitable in the future? On today’s date, only one this thing is giving Paytm profits. And that thing is – Paytm Payments Bank. Paytm made 29 Crs profit through Paytm Payments Bank in 2020. And in 2021, it became 37 Crs. All this was going but then enters RBI. And RBI bans Paytm Payments Bank. According to RBI’s ban, Paytm can onboard new customers after the ban is removed.

What are the problems with Business model of Paytm?

The reason is Unjustified Valuation. When PhonePe and GooglePay were not popular at that time, Paytm was the only Fintech King. But as PhonePe and GooglePay started growing, Paytm’s UPI market share started decreasing. Today Paytm is at 1700 Cr loss. Paytm is not able to make profits from Payments Bank or any other thing. But interestingly, the fall in the share price of Paytm is not due to it’s loss. The actual reason behind that is something different. The reason is Unjustified Valuation.

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