Paytm shares dive after fintech pioneer's revenue slides 34%

The company reported net income of 9.3 billion rupees in the quarter through September

Paytm's revenue fell sharply for the second straight quarter, reflecting the India fintech company's struggles to revitalize its bottom line after a regulatory clampdown on some of its most important businesses.

The stock dropped as much as 7.8 per cent on Tuesday after the firm posted a 34 per cent slide in sales to 16.6 billion rupees ($197 million). It also reported its first-ever net income, though much of that stemmed from a 13.5 billion rupee gain from the sale of its events ticketing business to internet peer Zomato Ltd.

A profitable quarter does little to ease Paytm's long-term challenges. The company is trying to convince users and investors of its prospects following a regulatory onslaught in early 2024 that sent its stock cratering. Facing intense competition in digital payments from the likes of Google, it's fighting to retain users while expanding in areas like loans.

Indian regulators ordered a near shutdown of Paytm's banking affiliate after years of warnings about unregulated data flows between that unit and the larger fintech. That disrupted the company's payments processing and much of its overall business, and forced founder Vijay Shekhar Sharma to forge deeper partnerships with other Indian lenders. The company still awaits clearances from India's central bank and a payments body to stabilize much of its business.

The stock plunged more than 50 per cent in February following the regulator's actions, though has since recovered much of that.

Paytm has since trimmed its workforce, and sold its movie and events ticketing business to Zomato Ltd. for $244 million. That sale is part of the company's strategy to sharpen focus on areas such as payments, cash-back and distribution of financial services like loans - businesses that are important for broadening its merchant base and increasing revenue.

It also scored a small win in August as it won federal approval to invest in its key payments gateway arm. The investment is a step toward getting a license as a payments aggregator, which has been pending before the Reserve Bank of India since 2022 when it also barred the company from adding new online merchants.

The company, which trades as One 97 Communications Ltd., reported net income of 9.3 billion rupees in the quarter through September. Analysts expected a loss of 6.3 billion rupees.

Its average monthly transacting user dropped to 71 million during the September quarter from 78 million in the preceding period as it migrated users to payments services in partnership with banks. Paytm said it disbursed 33 billion rupees in merchant loans during the three-month period, about a third more than in the previous quarter.

Sharma spearheaded fintech in India with Paytm mobile wallets and then QR codes. He attracted backers including Alibaba Group Holding Ltd. founder Jack Ma, SoftBank Group Corp. boss Masayoshi Son and Berkshire Hathaway Inc. Chairman Warren Buffett, making Paytm India's most valuable startup at one point.

An ill-fated capital markets debut in 2021 was perhaps Sharma's first public speed bump, from which Paytm's stock, still down more than 60 per cent from its listing price, is yet to recover.

Paytm competes with Walmart Inc.'s PhonePe, Alphabet Inc.'s Google and billionaire Mukesh Ambani's Jio Financial Services Ltd. in India's crowded digital payments space.