Once the most-celebrated tech unicorn in India, Paytm has been tamed by Dalal Street and its misfortune is now casting a shadow on the entire startup ecosystem.
The nearly ubiquitous digital payments firm’s market capitalization has fallen nearly 50% since its listing in November. It’s currently valued at less than $10 billion, a 50% correction since listing. The SoftBank and Alibaba-backed company was valued at $16 billion before its IPO.
Market analysts point to a host of reasons for this poor show, including the lack of a clear path to profitability, an inflated pre-IPO valuation, and the competitive nature of the payments business in India, among others. But whatever the reason, this episode has left other Indian startups in the lurch.
Experts believe Paytm is illustrative of the dissonance between exorbitant private market valuations and the public’s view on unprofitable internet businesses.
“I don’t think, in the next six months, you’re going to see many new-age business IPOs coming up,” said Amit Kumar Gupta, portfolio advisor at financial markets services firm Adroit Financial Services. Several startups that were poised to hit the market until last month “have now pushed their IPOs because of what happened with Paytm,” Kumar said. The price of unlisted shares of MobiKwik, Paytm’s rival that was slated to list this year, has seen its gray market premium drop significantly. Other IPO-bound startups have faced a 65% drop in the value of unlisted shares.
But the worsening sentiment isn’t specific to India. Gupta said the crash mirrors a global trend of unprofitable tech companies tanking on the stock market. For instance, the share price of American food delivery firm DoorDash is down 45% from its high, and Indonesia’s Bukalapak, which listed in 2021 in what was the country’s largest IPO, has shed 66% since it went public. In India, food delivery giant Zomato is also trading below its listing price.
While questions on profitability linger, the near-term adverse impact is largely driven by unreasonable valuations. Maybe bankers and founders should reduce IPO price miscalculations to avoid similar stock tumbles that don’t beat down the morale of those startups following in their footsteps. The idea is garnering traction among private investors who are now warning about the rebalancing of overvalued startups.
