Paytm‘s payments business has recorded profits on an operational basis, founder and CEO Vijay Shekhar Sharma told TOI. He mentioned that Paytm became EBITDA positive at the end of 2015, without revealing the details.
EBITDA means earnings before interest, tax, depreciation and amortization which can be also called as operating income, and is a measure of profitability for company’s core business.
Paytm closed 2015 with an annual gross merchandise value, or GMV, of $3 billion, with more than 60% of it coming from the payments vertical. Its commerce business is continuing to lose money.
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”
Paytm loses over $20 million a month on its platform, primarily to feed discounts via cash backs to the consumers. Essentially, what this means is that if Paytm decides to stop giving discounts in its e-commerce business then it can turn profitable.
“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,” Sharma said.
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.