Christmas might be a month away but it has indeed come early for the Indian individual as well as retail investors. The deluge of digital IPOs is far from over with a behemoth like LIC, shadow batting in the nets. However, nearly every IPO that has come to the market has been a loss-making venture, whether it be Zomato or Paytm.
Before the issuing of IPO, Nykaa was the only profitable company, however, its quarterly results released on Monday showed that the profits had slumped by as much as 96 percent as the 92 percent increase in expenses dwarfed the 47 percent gain in revenues. Yet, out of Paytm, Zomato and Nykaa, it is the latter that has the potential to reap real profits in the near future.
Talking about the current predicament of net profit only being a little over Rs 1 crore, Nykaa CEO Falguni Nayar, remarked that it was a momentary blip.
“To us, nothing much has changed. In fact, last year, I am talking about March ‘21. Because of the Covid impact, the first quarter had a loss and even the first half had a consolidated loss which turned into profit for the full year. Our first half losses last year were Rs 25 crore and second quarter last year was just Rs 4.7 crore of profit. These are small numbers.” said Nayar in an interview with ET.
Nykaa is competing in the make-up and fashion e-commerce segment. The industry has been relatively unexplored and with the company steadily ramping up on marketing to expand the customer base, one can expect better numbers, especially in the festive season just gone by.
Nayar echoed a similar sentiment by adding, “We expect the festive quarter to be strong, led by festivals and weddings and demand as well as e-commerce industry which does big sales during Singles’ Day and Black Friday, which we also call Pink Friday.”
Paytm competes in an overcrowded market
As for Paytm, it is pertinent to note that the ‘soon-to-be-listed’ company competes in an oversaturated market where it is no longer the leader. PhonePe and Google Pay together had an 80 share of the UPI transactions in September 2021. PhonePe had the greatest number of UPI transactions in September 2021 (1,653.19 million), followed by Google Pay (1,294.56 million) and Paytm (462.71 million).
Moreover, in its 11th year of operation, the company is still a loss-making company. In FY21, when the use of digital wallets and mobile payments surged, the company posted a decline in revenues. Despite a 60 percent cut in marketing and promotional expenses, the losses continued and the road to profitability is unclear.
Zomato and its quizzical numbers
As for Zomato, its numbers leading up to the IPO still make one wonder how did the food aggregator manage to get itself valued at such astronomical numbers.
At the time of the IPO issue, Zomato was pegged at Rs 66,000 crore or $8.8 billion in valuation. However, a year ago, when the pandemic had not struck the world, the food major’s valuation was $ 3.5 billion, and that too after acquiring Uber Eats and its India services.
What appeared rather quizzical was the fact that in a pandemic year when Zomato’s average delivery order value fell from Rs 400 odd to Rs 238, the company managed to scale its valuation manifolds.
Three months after getting listed on the stock market, Zomato reported a consolidated net loss of Rs 435 crore for the September quarter results published last week, compared to a loss of Rs 230 crore in the corresponding period a year ago.
Zomato mentioned that the higher losses were on account of increased spending on branding and marketing for consumer acquisition, increased investments and a growing share of smaller/emerging geographies.
However, with Swiggy and other food aggregators continuing to give Zomato a run for its money, it’s hard to comprehend where will the company make any breakthrough regarding profit.
Zomato and Paytm are playing the long game – at least this is what the executives of the company believe. Some of the most iconic global digital names like Airbnb, Dropbox, Instagram, Lyft, Snap and Uber are still loss-making outfits.
They all are relying on creating a broader, loyal userbase that will help them reap profits in the future. However, in an increasingly competitive food delivery segment, and a congested digital payment world, both Zomato and Paytm are staring down the barrel.