Paytm shares decline as Q2 revenue falls despite one-time profit gain

The stock of One97 Communications, the parent company of digital payments platform Paytm, fell by 7.7% after the announcement of its second quarter financial results. While the company posted a net profit of Rs. 930 crore compared to a loss in the same period last year, this was mainly due to gains from the sale of its ticket booking business.

Revenue from operations for Paytm declined 34% year-on-year to Rs. 1,659 crore in the July-September quarter. Excluding the one-time gain from the business sale, the company remained in loss, widening its net loss by 70% compared to the previous year. Paytm had also recorded a loss in the first quarter ending June despite lower revenues.

The fall in topline was mainly responsible for the drop in Paytm's stock price, showing weak business fundamentals. In the preceding quarter as well, revenue had declined sharply. The company is facing challenges to monetize its large user base and transition to a sustainable business model.

Regulatory issues have also impacted Paytm. Last year, the Reserve Bank of India had pointed out various irregularities and compliance failures at the firm, including on KYC and related party transactions. This has increased compliance burden and oversight on the company.

While Paytm shares have surged 84% in the last six months on recovery in stock markets, the counter is yet to reach its IPO issue price. Its performance also lags benchmarks like the Nifty 50 which has gained over the same periods. Investors remain concerned over Paytm's losses and declining revenues. The company will need to show a clear path to profitability and revenue growth to regain investor confidence.