Paytm is the worst performing global IPO in last 10 years

In the last one year, 5 major digital IPOs let to value depletion of close to Rs. 1.30 trillion. Out of these five, Paytm alone was responsible for value destruction to the tune of Rs. 1.10 trillion. That just goes to show how Paytm has borne the brunt of value destruction since the IPO last year. Against an Paytm IPO price of Rs. 2,150, the stock is quoting at Rs. 467 on the NSE as of the close on Friday. That is value depletion to the tune of a whopping 78.3% in the case of Paytm. What is more disappointing is that the value loss in Paytm from the IPO price is the worst by any large IPO globally over the last 10 years.

The last IPO in the world that lost more than Paytm in the first year was Bankia of Spain in the year 2012 at the peak of the European crisis. The stock had lost 82% in its first. Since then, Paytm has been the worst performing IPO at the end of one year of listing, losing 78.3%. Other big IPO disasters lost a tad less than that. For instance, DP World of UAE lost 74% in the first year after the IPO, while Bilibili of Hong Kong and New World Resources of UK had lost 72% and 71% respectively in the first year. However, the rupee lost must have been larger in the other IPOs since the IPO size of these companies was larger than Paytm.

There have been several reasons for the sharp fall in Paytm in the last one year, chief among them being valuation concerns. Paytm had hit the IPO market with a valuation of Rs. 139,000 crore; which by itself was about 20% lower than its last funding based indicative valuation. However, in the last one year, the market cap of Paytm has fallen from Rs. 139,000 crore to less than Rs. 30,000 crore. One of the main reasons was that the IPO of Paytm coincided with the turnaround in global digital valuations and Paytm had to obviously bear the brunt of it. Worse still, since it was listed, the market scepticism really took its toll on the stock.

However, there were fundamental concerns too and nobody in the last one year has consistently highlighted fault lines in the Paytm business model like Macquarie. First, they had concerns over valuations of Paytm and then the concerns were the aggression shown by PhonePe in taking over the instruments business. While there have also been concerns over regulatory oversight and its impact on Paytm, the new concern in the market is about the way Jio Finance could reinvent the industry. In its latest report, Macquarie highlighted this point. The report, along with the end of lock-in, contributed to bulk of the recent fall.

Just to underline, the end of the lock-in period for Paytm has been a major concern for the investors and the valuations and it led to a surge in selling. In fact, the losses of the stock only deepened in the last couple of weeks in the midst of concerns over the emergence of Jio Finance as potential competitor. Most investors had seen how Reliance Jio had rehashed the telecom and digital ecosystem in India and were expecting something as drastic as that. That is not great news for Paytm since it is in the same area of business. The concerns were also expressed by long term investor, Softbank, which sold heavily on the Paytm counter. November 2022 alone has seen the stock slide by more than 31%.

Apart from the India specific concerns, the technology and digital rout is a global phenomenon. NASDAQ is a prime example and it has just failed to recover the way the Dow has managed to do. Large listed digital stocks like Amazon, Apple, Microsoft, Nvidia and Facebook have seen value depletion in the last one year to the tune of $4 trillion. The market cap loss of these 4 companies alone is more than the market cap of the Indian stock exchange, which goes to show how deep the malady of digital stock valuations is. The trend has been investors shunning loss making companies or businesses where short to medium cash flow visibility is not there.

Ironically, not all investors are sceptical. Marquee investors like Blackrock and Canadian Pensions continue to be aggressive buyers in Paytm. Of course, Warren Buffett also continues to be invested in Paytm, while Softbank is heavily invested in Paytm even after selling a big chunk this month. Experts feel it is not the problem with the digital model, but the fact that investors got overly optimistic and hopeful about the digital model. That was the crux of the problem in this case. For starters, Paytm, continues to grow its top line, its gross order value (GOV) and its market share consistently. Probably, at some point in the near future, rationality should come back.