Text/BU Review/ZiYang Proofreader/Zhiqiu
As a "stock god", Buffett has created countless investment myths. Among them, Buffett's investment in Apple has earned him a return of more than 100 billion US dollars, while his investment in Coca-Cola has been exchanged for a 5500% return on investment.
However, Buffett, who has experienced hundreds of battles, fell on his heels in India, losing nearly 50% at once.
Buffett looked away
In September 2018, Buffett's Berkshire Hathaway subsidiary acquired a 2.6% stake in Paytm's parent company for Rs 1,279 per share.
As Buffett's first investment in India, this transaction has naturally attracted a lot of attention, and everyone is looking forward to seeing Buffett stage an investment myth again.
However, the direction of the story was unexpected by everyone.
On November 18, 2021, Paytm went public in India with a record IPO size. However, Paytm plummeted by 27% on the first day of listing, and after that, Paytm's stock price fell all the way.
By February 18, Paytm's share price had slipped to Rs 833.83 per share, an unexpected 61 per cent lower than the issue price.
Buffett has suffered a lot of losses because of this investment. According to estimates, Buffett's initial investment has evaporated by about 50%, losing nearly $150 million.
Why is Paytm's stock price so depressed?
Replicate the Chinese experience
Paytm is the largest mobile payment platform in India, with the title of "India's version of Alipay".
Beginning in 2015, Ant Group began investing in Paytm, followed by Alibaba. It is worth noting that Alibaba has brought Paytm not only capital, but also technology and operational experience.
Alibaba's purpose is clear, which is to replicate Alipay's successful experience in India. For the development of Paytm, Alibaba is very confident.
But at present, Paytm has been slow to make a profit, and the company's development model has also been questioned.
It is difficult to make a profit for a long time
Since its creation in 2010, Paytm has not been profitable. According to the latest earnings report, Paytm's revenue in the fourth quarter of 2021 increased to Rs.146 crore, but the loss was even worse, with the loss widening to Rs.78 crore.
Paytm's results are really unsatisfactory, which is why Paytm's stock price has been "falling and falling".
Although Goldman Sachs and Morgan Stanley expect Paytm to "break even" by March 2025, there are many in the industry who are skeptical of Paytm's profit model.
What are the obstacles to Paytm's desire to be profitable? I think there are three reasons.
First, the acceptance of mobile payments in India is not high.
Today, the popularity of the Internet in India needs to be improved, which limits Paytm's promotion. At the same time, nearly half of Indian consumers prefer cash payments to mobile payments, which further limits Paytm's development.
Second, India's supervision is becoming stricter.
The Indian government's increasing regulation of the financial technology sector has also brought serious challenges to the development of Paytm, and many prohibitions have forced Paytm to give up some things.
Third, the business model lacks focus and direction.
Paytm's business model is a key reason why companies struggle to make a profit, and in most verticals, Paytm faces intense competition.
For example, in the field of merchant payment, Paytm faces competitors such as Pine Labs, BharatPe, payU; in the field of consumer payment, it has to compete with the payment services promoted by the Indian government; in the field of investment services, Paytm faces challenges from Grow and Raise Financial Services.
It is not difficult to see that the competitive pressure faced by Paytm is not small. As a comprehensive platform, Paytm has a lot of areas, but in most vertical areas, professionalism is lacking, and it is difficult to compete with the best in the vertical track.
Paytm's lack of focus and direction in its business model makes it questionable and makes it difficult to make a profit.
The above three reasons are also the answers to Paytm's inability to replicate the Chinese model. Although Alipay has achieved excellent results in China, after all, the situation in the Chinese and Indian markets is different, so it is not feasible for Paytm to replicate the Chinese model.
Faced with all of these challenges, I don't know how Paytm will respond.