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Vijay Shekhar Sharma, founder and chairman of One97 Communications, operator of PayTM, strikes the gong during the listing ceremony of the company’s IPO in Mumbai.
Dhiraj Sing/Bloomberg
The bungled initial public offering by Indian fintech PayTM shows that even these days, even in a market hyped as the next China, investors won’t buy anything at any price.
That’s a good thing. “From investors’ point of view this is positive,” says Ian Chun, an Asia-focused portfolio manager at Vontobel’s Quality Growth Boutique. “Companies will need to articulate their vision more clearly, or seek a more reasonable valuation.”
PayTM, listed as
One97 Communications
(ticker: 543396: India), plunged by a quarter the day after its Nov. 18 IPO. It’s still down 17%.
PayTM was the latest contender to be an emerging markets “superapp.” In countries that are still in their digitization growth spurt, the theory runs, a company that grabs users can leverage them into multiple verticals: e-commerce, wealth management, games, ride-hailing, whatever. Profits, if there are any, take a far back seat to future potential. Over the weekend, One97 posted its first financial results as a public company, with losses widening to 4.74 billion rupees ($63 million) in the July-to-September quarter from the year ago period, Bloomberg reported.
Markets have begun to question this paradigm. Shares in Latin America’s would-be superapp,
MercadoLibre
(MELI), have sunk 25% this year, after more than doubling in 2020. Sea Ltd. (SE), its rough counterpart in Southeast Asia, stayed hot until a month ago. Since then it’s tumbled about 19%.
The model for superapp agglomeration is China, where authorities nurtured
Alibaba Group Holding
(BABA) and
Tencent Holdings
(700. Hong Kong) within a strictly walled internet garden. That blueprint is hard to duplicate in markets with free competition. And Beijing itself is now taming the monsters, from regulators’ perspective, that it created, with calamitous market results.
By the time PayTM issued shares, it had lost first place in its core payments business to foreign competitors: GooglePay and PhonePe, which is controlled by
Walmart
(WMT). State-operated United Payments Interface is also gaining market share. PayTM’s expansion into financial services will face formidable roadblocks in established banks like
HDFC Bank
(HDB) and
Kotak Mahindra Bank
(500247. India), says Tom Masi, co-manager of the emerging wealth strategy at GW&K Investment Management. “It’s very difficult to do business in India,” he says. “So companies that have established positions will be very hard to unseat.”
Despite these red flags, PayTM and its bookrunners from
Goldman Sachs Group
(GS),
Morgan Stanley
(MS),
JPMorgan Chase
(JPM, and
Citigroup
(C), pushed for a record IPO haul of $2.5 billion. That valued the company, which has yet to see profit, at 30 times sales, compared with 7-10 for U.S. analogs like
PayPal Holdings
(PYPL) or
Square
(SQ), says Amit Anand, co-founder of the
Nifty India Financials
exchange-traded fund (INDF). “Pricing had less to do with the market and more to do with PayTM’s founder’s ambition for India’s largest IPO ever,” he says.
That hardly means game over for emerging market tech growth companies. Online penetration and sales rates from Brazil to Indonesia are a fraction of China’s or developed markets’. Huge swaths of digital real estate remain up for grabs, justifying higher multiples, to an extent. “If a company can stay ahead of its competition, the growth ahead of it is vast compared with DM companies,” Chun says.
As the superapp model becomes suspect, investors are turning toward smaller market entrants with a firmer grip on a particular business. In India,
FSN E-Commerce Ventures
(543384. India), which runs the Nykaa beauty products site, has more than doubled since its Nov. 9 IPO.
PB Fintech
(543390: India), parent of the Policy Bazaar insurance marketplace, is up 30% since debuting two weeks ago.
South Korea’s
Kakao
(035720.Korea), which started life as a dominant messaging and social media space, has inverted the superapp strategy by spinning off successive verticals:
Kakao Games
(293490.Korea),
KakaoBank
(323410.Korea), and most recently
Kakaopay
(377300. Korea). All stocks are well into the black despite a regulatory scare from Seoul this September.
“The highflying business models are constantly changing,” GW&K’s Masi says, explaining his preference in India for the bricks-and-mortar banks, or consumer standbys like
Asian Paints
(500820.India). But hard lessons learned from PayTM may help them change for the better.
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