Why was Paytm’s market debut a flop?

Debacle, plunge, tumble.

These are some of the words that pop up on the screen if you search for “Paytm IPO” on Google.

Image courtesy Quartz India

The fintech company’s initial public offering (IPO), which was touted as India’s biggest listing, lost US$900 million in two days.

Shares of One97 Communications, the parent firm of Paytm, rose nearly 9% to 1,434.95 rupees (US$19.28) on Tuesday to break the two-day losing streak. On Wednesday, the stock hit a high of 1,684 rupees (US$22.63), recovering almost 80% of the issue price of 2,150 rupees (US$28.89).

While the Paytm IPO was oversubscribed 1.89x, it had a lackluster debut compared to other Indian tech unicorns such as Nykaa, Zomato, and PolicyBazaar.

What went wrong?

“No one understood what Paytm actually stood for and the pricing was far too high,” a partner at a top VC fund told Tech in Asia.

“Even in the pre-IPO market when the company was trying to raise funds, most of the investors came up with a lesser valuation,” the person added. As such, Paytm scrapped the pre-IPO round and went ahead with a direct listing, seeking a US$20 billion valuation.

However, a pre-IPO round was just one of the options that Paytm considered, according to sources within the company.

The founder of a fintech startup, who spoke to Tech in Asia under condition of anonymity, also pointed out that Paytm doesn’t have a clear road to monetization.

The Alibaba-backed company reported that its overall gross merchandise value (GMV) rose 112% year on year between April and October, with average monthly transacting users climbing 35% from the same period in 2020.

Photo credit: 123rf

But a Macquarie Research report noted that most of that GMV growth – an estimated 66% in FYE 2021 – was due to UPI-based transactions, which don’t generate income for Paytm. Monetizing UPI payments is not possible in India because the service is free.

Bumpy road for IPO-bound companies?