Well, Paytm has finally struck gold. In an interview with the TOI, founder and CEO Vijay Shekhar Sharma said that the company had found a solid footing and had finally managed to record profits for its payments business, on an operational basis.
EBITDA is a term which refers to the earnings before interest, tax, depreciation and amortization and is also known as operating income. Verily, the term is an indicator of whether a company is profitable or not.
Paytm can credit a large part of its success to its core, payments business that brought in over 60 percent of its annual gross merchandise value of $3 Billion. The performance from the e-commerce department meanwhile, didn’t quite match expectations — but that’s not particularly surprising considering that most virtual retailers found themselves in a similar situation at the end of 2015
Anyhow, the payments major has finally reached that milestone. As per Sharma,
We have done business of over $2 billion from payments and turned EBITDA positive in a span of four years. Our investments will be channelized towards the marketplace business
However, the company is still burning cash at an alarming rate to prop up the e-commerce section — a fact which is keeping it from turning profitable at company level. And while there is no dearth of customers in its payments niche, the company was recently known to be spending $20 million a month to support the various discounts operating on its ecommerce platform.
The mobile recharge business and other utility payments constitute equal share of the $2 billion GMV we clocked from the payments business last year. A key reason for Paytm’s payment operations turning profitable operationally is the sticky nature of business. The number of repeat users is relatively higher compared to horizontal e-commerce companies, where transaction rates are higher,
The two things Paytm has going for it are one, it has the backing of Chinese giant Alibaba and two, its payments business is still way ahead of competition. The sucess of the latter can be attributed to the increasing diversification. In simpler terms, an increase in the number of places that accept Paytm based payments — in this case, extending to various marketplaces, grocery and more recently, O2O.
One of Paytm’s closest competitors, Snapdeal owned Freecharge for example, has about 15 million users at present and facilitates 30 million transactions per month and significantly lags behind Paytm’s 120 million users witnessing 90 million transactions every month.
However, competition is quickly catching up and the number of competitors in the field is growing as well with other players including PayU, Mobikwik and Citrus Pay on the ascendance.
That may just be the reason behind Paytm’s somewhat stubborn focus upon e-commerce. As per Sharma,
We should be able to clock $10 billion in GMV this year and commerce business will have a substantial share in that. The core payments and aligned business will have a pie of $5 billion while the commerce platform should clock another $5 billion for us.
Talk about huge ambitions. The company would have to almost triple its business size and do something to make its e-commerce business self sustainable, if it hopes to realize this goal by the year end. But then, anything is possible in the ever shifting sands of business.