Five Things Investors Should Know About Paytm's Business Growth
As Paytm focuses on creating long-term shareholder value, here are 5 important facts investors should know
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New-age technology companies are the new buzzword on the stock markets, with several analysts claiming that the worst is over for these stocks and will yield stronger returns as they gain business momentum. Some of these new-age technology companies even have the potential to become multi-baggers in future, noted a recent report.
One such new-age technology company witnessing stellar growth is Paytm, India’s leading digital payments and financial services company. A host of global and domestic brokerages have highlighted Paytm’s potential to grow in the future as the company continues to report better revenue growth each quarter, buoyed by strong growth across its key businesses.
As Paytm remains focused on creating long-term value for shareholders, here are five things investors should know about the company’s strong growth:
89 percent revenue growth for three consecutive quarters
Supported by strong growth across all its key businesses, Paytm has reported 89 percent revenue growth for three consecutive quarters—Q1FY23, Q4FY22 and Q3FY22. This is because of stronger monetisation across its core business of payments and the high-margin loan distribution business. The company recently reported its Q2 FY23 operating update, which indicates that investors can again expect yet another quarter of strong financial growth. Meanwhile, the total merchant GMV processed through the platform for the quarter ended September 2022 stood at Rs 3.18 lakh crore ($39 billion), marking a year-on-year (YoY) growth of 63 percent.
Only fintech company with a two-sided ecosystem
Paytm is the only digital payments and financial services company in India that offers a two-sided ecosystem catering to consumers and merchants, unlike its competitors, which only serve one segment. With its unique ecosystem and multi-payment architecture, Paytm has not only transformed the fintech landscape in India but has also empowered millions of consumers and small businesses in the country. This has also enabled the company to strengthen its business model, acquiring consumers and merchants through payments and cross-sell high-margin services like loans and devices. Backed by its robust ecosystem, Paytm has seen record user engagement on its app, with average monthly transacting users (MTU) at 79.7 million.
Loan distribution business outperforming analyst expectations
Paytm’s loan distribution business, in partnership with marquee financial institutions, has grown rapidly, with strong adoption among consumers and merchants. In its operating update for Q2 FY23, Paytm said the volume of loan disbursals during the quarter increased 224 percent year-on-year (YoY) to 9.2 million, while the value of these loans rose 482 percent YoY to Rs 7,313 crore. ICICI Securities said in a report that Paytm’s loan distribution grew better than its expectations in the second quarter, with disbursals at an annualised run rate of Rs 34,000 crore. The brokerage also said Paytm could see 10 percent quarter-on-quarter growth in operating revenue, citing strong growth across key businesses.
Leader in offline payments with nearly 50 lakh devices deployed
After pioneering QR and mobile payments in India, Paytm is now leading the merchant revolution in the country with its subscription-based payment devices. The company has seen rapid adoption of its devices among merchants in all parts of the country. It remains way ahead of its competitors, having deployed more than 4.8 million devices as of Q2 FY23. It is worth noting that the company is deploying 10 lakh devices per quarter as the popularity of its devices continues to grow. The company said its subscription-as-a-service model has paved the way for higher merchant engagement and monetization and helped Paytm generate higher revenue from device subscriptions.
Top brokerages remain bullish about Paytm
Lastly, Paytm’s business model and profitability plan have been backed by some of the top global and domestic brokerages, including Goldman Sachs, Citi, JP Morgan, Morgan Stanley and ICICI Securities. These brokerages remain bullish about the Paytm stock, citing strong revenue growth for consecutive quarters, accelerated loss reduction and a robust business model.
Goldman Sachs recently added Paytm to its conviction list and reiterated that it is one of the most compelling growth stories among new-age technology companies. Meanwhile, analysts at JP Morgan recently said that Paytm is now on the “stairway to profitability,” highlighting the company’s robust business model and strong monetisation across critical businesses.
“The Paytm business model has begun to demonstrate its impact in the past few quarters. The technology platform, with high engagement from merchants and consumers, is accelerating monetisation through its lending business. The scale of growth has been impressive, and more importantly, the potential is yet to scratch the surface, with the company just opening 4 percent of its merchants to its lending business. This augurs well for the company to deliver on its September 2023 breakeven promise”, said Avinash Gorakshar, Profitmart Securities.