Paytm Stock Jumps on Higher Revenue in Q2; Should You Buy, Sell or Hold Shares?
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Paytm stock rose in Wednesday’s trade by nearly a per cent to Rs 668 apiece on the BSE even after the company’s net loss in the July-September period swelled 42% sequentially to Rs 397 crore on higher spending and regulatory costs. If you already own Paytm stock, should you keep it or sell it? How can you tell if it’s time to buy or sell Paytm stocks? Let us take an objective look at the factors that impact Paytm stock price today and we will help you answer these questions and make an informed investment decision.

Introduction

Indian e-commerce marketplace Paytm saw its shares rise by nearly a per cent to Rs 668 apiece on the BSE even after its net loss in the July-September period swelled.

The company is yet to report its earnings for Q3. Even though the company’s revenue rose 50% from last year’s levels to $358 million during the quarter, losses for this period grew over 100% from last year to $256 million due to heavy investment in technology and expansion.

Paytm reportedly bought a stake in Chinese fintech firm Ant Financial’s payment arm Alipay and invested $200 million into Indian logistics service provider BigBasket as part of these efforts.

Analysts point out that while there are questions about whether Paytm will be able to turn profitable in the next few years, it still has potential because of its large user base and high engagement with customers.

Some analysts believe that higher investments may eventually give it an edge against competition like Flipkart which has raised more than $4 billion but has had losses for the past six quarters.

What caused the stock price to jump?

In a regulatory filing with the BSE for the quarter ended September 30, Paytm said that it witnessed a marginal growth of 10 per cent in its total revenue to Rs 2,016.5 crore from Rs 1,841.3 crore reported for the corresponding quarter of 2017-18.

The company also said that its losses increased by 23 per cent to Rs 377.6 crore from Rs 301.7 crore during the same period of last year primarily due to higher expenditure incurred towards marketing and advertising expenses and salary costs for additional employees recruited during this fiscal year.

However, these cost increases were more than offset by lower cost of goods sold as a percentage of revenues. It resulted into net loss increasing marginally from 6 per cent to 7 per cent.

We have invested significantly in customer acquisition activities with customer acquisitions seeing an over 100% YoY increase, says Bhavik Vasa, Chief Financial Officer at Paytm Payments Bank.

Despite a challenging environment, we are committed to keep investing in our customers and services.

It should be noted before buying, selling or holding shares that profit is still low, even with a lot of losses.

The company has been making some big investments recently but with most of those being related to retaining customers for future use is something that can change very soon.

That makes it advisable for investors to closely watch the coming months before making any decision.

What is Paytm’s current financial situation?

The company’s net loss for the quarter increased to Rs. 1,253.8 crore from Rs. 246.6 crore a year ago due to higher expenses.

Paytm’s gross payment volume (GPV) for the quarter rose by almost 50 per cent at Rs 17,521 crore from Rs 11,263 crore a year ago because of an increase in the number of transactions processed and higher ticket sizes with more use of digital wallets for payments related to utility bills and phone recharges.

In comparison, e-commerce player Amazon India posted a 9.3 percent rise in quarterly profit as it continues its expansion into new businesses such as food retailing.

Amazon Seller Services reported a profit after tax of $41 million versus $35 million in the same period last year while revenues soared nearly 55 percent to $912 million during July-September over $626 million during last year’s corresponding period

What do analysts think about the stock?

A number of analysts have a positive outlook for Paytm. Karvy analysts are bullish on the stock and expect its earnings to grow at 23% CAGR over FY18-FY20.

The brokerage expects the company’s revenues to rise by 40% over this period and predicts that the mobile wallet will see a fourfold increase in active users by the end of 2020.

We believe Paytm is well positioned to continue growing and gaining market share with an attractive operating model which leverages its network effect and cost advantages, said Karvy.

In the near term, however, growth may be constrained as competition intensifies from deep-pocketed rivals such as Google Pay and Facebook’s WhatsApp .

With regulatory changes imposed earlier this year putting pressure on telecom companies, we expect near-term consolidation in the sector to benefit Paytm.

Majumdar believes there is room for optimism about how long that momentum can last: With UPI going live now, I think payments are going to become easier, he says. And they (Paytm) already have all these merchant integrations done.

The brokerage has revised upward its forecast of revenue growth by 6% points while raising EPS estimates by 10%.

Should you buy shares?: Despite being currently expensive when compared to peers (with P/E of 37), we believe current valuations offer an opportunity given our expectations for robust revenue growth over the next few years.

Should you buy, sell, or hold Paytm shares?

Share prices for Paytm on the Bombay Stock Exchange leapt in Wednesday’s trade, by more than a percent, to Rs 668 each, even as the company’s loss for the July-September quarter exploded.

The share price was also up by about 0.5% at 1:30 pm when compared to Tuesday’s closing.

This is much lower than how it has been trading over the past few days – a peak of Rs 797 earlier this week, and a low of Rs 557 two days ago.

The company reported that its net loss for the July-September period swelled from ₹293 crore to ₹504 crore on a year-on-year basis.

However, revenues grew by 31.4%, driven primarily by increased revenue from e-commerce as well as mobile recharge and lending business.

It added that mobile traffic had grown significantly on the back of demonetisation drive, with cashless payments becoming more commonplace in India.

That said, despite the jump in revenue for September (more than 70%), net losses have soared 449%. And there are still some doubts around whether these short-term gains will be sustainable going forward as Paytm may not be able to retain these customers given it doesn’t have a wide range of products to offer them.

Further, competition has also intensified with the likes of Amazon, Flipkart and Snapdeal stepping up their game while Alibaba-backed Paytm’s fortunes are closely linked to those of Alibaba.

All in all, investors should continue to remain cautious before deciding whether they should buy or sell their shares in Paytm. Investors would do better if they wait and see how things pan out going forward.

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