Japanese tech conglomerate SoftBank has continued its trend of divesting stakes in Paytm’s parent entity, One97 Communications. Over the past month, SoftBank has sold another 2% stake in One97 Communications for INR 950 Cr ($114 Mn), bringing down its shareholding in the company to approximately 5%. This move follows a series of open market operations and a strategic reduction in SoftBank’s involvement with Paytm.
Strategic Stake Reduction History
SoftBank, which held close to a 7% stake in Paytm last year, has been steadily reducing its investment over the past twelve months. In July of the previous year, SoftBank sold another 2% stake in One97 Communications, amounting to approximately $300 Mn. The recent divestment in January 2024 involved offloading 0.55% in December followed by 1.4% in January. The reduction in SoftBank’s stake comes against the backdrop of a 20% surge in Paytm’s share value over the last month.
Paytm: Financial Performance
While SoftBank has been scaling down its involvement, Paytm has shown resilience in its financial performance. In Q3 FY24, Paytm managed to trim its net loss by a notable 43%, reducing it to INR 222 Cr from INR 392 Cr in the corresponding period of the previous fiscal year. The sequential net loss decline was 24% from INR 292 Cr in Q2 FY24. The fintech major’s operating revenue saw a robust growth of 38%, reaching INR 2,850 Cr in the quarter ending December 2023, compared to INR 2,062 Cr in Q3 FY23. On a quarter-on-quarter (QoQ) basis, operating revenue jumped 13%.
Paytm: Factors Driving Revenue Growth
Paytm attributes its revenue growth to multiple factors. The rise in gross merchandise volume (GMV), increased device additions, and the expansion of its financial services business played crucial roles in the positive performance during the quarter. Additionally, the festive season provided a boost to revenues in Q3 FY24. However, the company also faced a surge in total expenses, which increased by 27.5% year-on-year (YoY) to INR 3,216.3 Cr in Q3 FY24.
Paytm’s Strategic Initiatives
In response to market dynamics and the need for financial resilience, Paytm’s CEO Vijay Shekhar Sharma announced strategic initiatives during an earnings call. The company plans to focus on adding technological capabilities to its business, creating a leaner workforce. Instead of expanding business functions, Paytm aims to leverage technology, including artificial intelligence (AI), to enhance efficiency and capabilities on its platform.
In alignment with the decision to scale down small-ticket loans, Paytm recently carried out layoffs affecting hundreds of employees. The company cited the increasing usage of AI-led automation as a key factor in the decision to streamline its workforce. Vijay Shekhar Sharma emphasized the ongoing integration of AI capabilities, which, in turn, reduces the linear demand for a growing number of employees.
As SoftBank trims its stake, and Paytm navigates through strategic changes and financial improvements, the fintech major is positioning itself for a dynamic future. The company’s commitment to adding technological capabilities and embracing AI-driven efficiencies underscores its adaptability in the evolving financial technology landscape. Paytm’s ability to balance innovation, financial performance, and strategic partnerships will be crucial in shaping its trajectory in the highly competitive fintech sector.
SoftBank’s continued reduction in stake in Paytm raises questions about the investor’s long-term strategy and the perceived market dynamics. On the other hand, Paytm’s ability to weather the storm, reduce losses, and strategically pivot toward technology-driven efficiencies reflects resilience in the face of challenges. As Paytm evolves its business model, the ongoing interplay between investors, technological advancements, and market forces will define the company’s future success in the ever-evolving fintech landscape.
