Paytm share price crashed by more than 26% on Wednesday when it debuted in India. The stock declined sharply, pushing investors to lose more than $5 billion in value. This became one of the worst-performing initial public offering (IPO) this year. The other one was the sharp decline of Deliveroo shares in London.
Paytm goes public
Paytm is a large and fast-growing Indian payment company that offers a number of services like bill payment and airtime purchases. It is also considering offering Bitcoin payments if the government legalizes it. The company’s product is used by hundreds of millions of customers in the country.
The company achieved this growth by raising millions of dollars from investors like K2 Global, Softbank, and Ant Financial and Investopad. In total, it raised more than $32 million, according to data compiled by Crunchbase.
Paytm went public in India on Wednesday after it raised $2.5 billion. This IPO gave the company a market value of about $20 billion, making it one of the biggest fintech companies in India.
Why Paytm share price crashed
The sharp decline of the Paytm share price was worrying because investors have interest of investing in Indian companies. For example, shares of firms like Zomato, Nykaa, and Policybazaar rose after debut.
There are three main reasons why the stock declined after its giant initial public offering. First, the company is facing significant competition in the Indian market. Worse, this competition is coming from well-funded upstarts and large giants like Amazon, Flipkart, and Facebook. Therefore, investors see a very little room for growth in the near term.
Second, Paytm has a long runway before it becomes a profitable company. While other fintech companies are seeing robust growth, the company has seein decelerating growth in the past few months. Its revenue dropped by more than 11% in the past financial year while its losses declined by more than 42%.
Third, the Paytm stock price crashed because of low interest from Indian and global fund managers. In most IPOs, these entities are usually important because they tend to buy more shares. They also tend to have a long term view of the company.
So, what next for Paytm stock?
The weak performance of the Paytm share price means that investors should hit pause before buying the dip. This is because the stock will likely keep falling in the near term. However, in the long-term, the stock is an attractive buy.
The bullish view is based on the fact that the company has a strong market share and it has a room for growth in the coming years.
