On Tuesday, May 6, after market hours, One97 Communications Ltd., the parent company of fintech giant Paytm, released its March 2024 quarter financial results. In addition to missing analyst estimates, the company posted a net loss in the earnings report, which has investors worried because it defied expectations of a recovery.
In this article, we will look into Paytm’s Q4 FY24 earnings, the reasons behind its disappointing performance, and what it means for the company’s future.
Credits: Business Standard
Net Loss Widens, Misses All Analyst Estimates
Paytm reported a consolidated net loss of ₹544.6 crore for Q4 FY24, only a marginal improvement from the ₹550.5 crore loss in the same quarter last year. This figure is far worse than what analysts had predicted.
Brokerages such as JM Financial and Yes Securities had forecast a rare profit of ₹3.6 crore and ₹4.5 crore, respectively. Even the more conservative estimate by Motilal Oswal, which anticipated a net loss of ₹112 crore, fell well short of the actual outcome.
The disappointing result underscores that Paytm’s profitability path may be longer than anticipated, especially in a tightening regulatory environment.
Revenue Declines Sharply, Below Street Estimates
The company’s revenue declined 15.7% year-on-year to ₹1,912 crore in Q4, a significant drop that also missed expectations. JM Financial had projected ₹1,975 crore, while Motilal Oswal had expected ₹2,098 crore.
This decline reflects challenges across Paytm’s ecosystem, especially after the RBI’s clampdown on Paytm Payments Bank earlier this year. The banking restrictions likely affected merchant payments, wallet recharges, and other revenue streams.
The weakness in topline growth could be a red flag for investors who were banking on revenue momentum to support a turnaround story.
A Silver Lining: Operating Metrics Show Some Recovery
Amidst the gloom, there were a few bright spots in Paytm’s report. The company posted EBITDA before ESOP costs of ₹81 crore, a healthy improvement of ₹135 crore from the December 2023 quarter.
This operational improvement suggests that despite regulatory headwinds, Paytm is making strides in cost rationalization and margin enhancement. It could also signal better cash flow discipline going forward — a key metric for investors tracking Paytm’s path to breakeven.
However, the benefit was largely neutralized by high non-cash costs related to ESOPs.
ESOP Costs and CEO’s Sacrifice Add Drama
Employee Stock Option (ESOP) costs remained substantial at ₹169 crore during the quarter. The management, however, assured investors that these costs are expected to “reduce significantly” in upcoming quarters.
In a dramatic move last month, Paytm CEO Vijay Shekhar Sharma voluntarily gave up 21 million ESOPs, which led to a non-cash accounting expense of ₹492 crore. The move came amid increasing scrutiny from market regulator SEBI over corporate governance and compensation practices.
While the ESOP surrender may improve optics, it has still hurt the company’s bottom line and weighed on investor sentiment.
Stock Reacts Ahead of Results, Sentiment Remains Cautious
Paytm’s stock ended 6% lower on Tuesday, just ahead of the results announcement. The decline reflected investor caution, especially given the regulatory overhang and expectations of muted financials.
The worse-than-expected earnings are likely to put further pressure on the stock in the short term. Analysts may revisit their price targets and profitability timelines, particularly if revenue trends don’t pick up quickly.
Credits: CNBCTV 18
What Lies Ahead for Paytm?
As Paytm navigates the fallout from regulatory restrictions and works toward streamlining its cost structure, the road to sustainable profitability looks longer than initially forecast.
Investors will closely watch how the company adapts its business model in the coming quarters — particularly around lending partnerships, UPI transactions, and merchant services — now that its payments bank has been hobbled.
Meanwhile, continued improvement in operating metrics and reduced ESOP-related expenses may offer some hope. But until revenue stabilizes and net losses narrow meaningfully, investor confidence may remain shaky.
