Technology start-ups that got listed in the last few quarters reported a hit to their December-quarter (Q3FY22) profitability due to higher marketing and employee costs.
While fintech firms Paytm and PB Fintech saw their losses widen by 45 per cent year-on-year (YoY) to Rs 778 crore and 55 per cent to Rs 295 crore, respectively, food delivery company Zomato remained in the red despite narrowing its net loss by 81 per cent to Rs 66 crore.
Meanwhile, online fashion and beauty products seller Nykaa saw its net profit drop 59 per cent to Rs 28 crore in Q3FY22.
“Nykaa and Policybazaar had shown an uptick in their profitability in the run up to their IPOs (initial public offerings).
“I think the market would not appreciate it if they suddenly changed their course and any downtrend in their profits will be perceived as red flags,” said Ambareesh Baliga, an investment expert.
“Zomato’s loss-making streak has also not gone well with the markets as can be seen from its share price falling below Rs 90 apiece from a lifetime high of over Rs 160.
“Paytm is in a different orbit altogether and it needs to get its act together on the business model instead of having its finger in too many pies,” he said.
Zomato’s shares closed at Rs 84.95 apiece – down 26 per cent from its listing price of Rs 115 – on the BSE on Wednesday.
Paytm closed at Rs 860.45, which is 56 per cent lower than its listing price, and 60 per cent below its issue price.
PB Fintech ended the session at Rs 775.75 on Tuesday, down 36 per cent from its listing price, while Nykaa was trading 25 per cent below its listing price at Rs 1,504.8.
Rategain’s shares have fallen 7 per cent below their listing price to Rs 341.
However, one bright spot for the firms was a steep rise in revenues in Q3.
Zomato’s revenue from operations rose 86 per cent to Rs 1,112 crore, Paytm saw an increase of 89 per cent to Rs 1,456 crore, and Policybazaar’s revenue jumped 73 per cent to Rs 367 crore.
Nykaa had the lowest rise in revenue among the listed unicorns, with a 36 per cent increase to Rs 1,098 crore.
But this came at the cost of higher marketing and customer acquisition expenses.
For instance, Policybazaar’s marketing expenses rose 199 per cent YoY to Rs 236 crore in Q3FY22.
Anchit Nayar, the chief executive officer of Nykaa’s beauty e-commerce segment, told Business Standard in an interview that marketing expenses had gone back to pre-Covid levels across the industry as competition was very high.
Nykaa’s marketing expenses rose 155 per cent to Rs 154 crore in Q3FY22.
While Paytm said its marketing expenses rose 64 per cent to Rs 167 crore in Q3FY22, its promotional and cashback spends have risen 6 per cent to Rs 117 crore.
Meanwhile, Zomato said it acquired only 5.5 million new users in Q3, against 7.4 million in Q2, and 6.7 million in Q1, as it spent more on marketing.
Zomato’s employee benefit expenses have increased 122 per cent to Rs 412 crore in Q3FY22, while Paytm’s rose 147 per cent to Rs 831 crore and Policybazaar’s zoomed 211 per cent to Rs 395 crore.
Nykaa recorded the smallest rise of 57 per cent.
Policybazaar said its employee stock options plan (ESOP) cost had zoomed more than nine times YoY in Q3 to Rs 226 crore.
Interestingly, co-founders Yashish Dahiya and Alok Bansal said through a regulatory filing that they will offload shares worth over Rs 1,000 crore – around 2.4 per cent of equity – and the proceeds will likely be used to make tax payments towards the ESOPs that are due.
Meanwhile, its fintech peer Paytm recorded an ESOP cost of Rs 390 crore in Q3FY22, which was 829 per cent higher than Rs 42 crore recorded in the year-ago period.
Rategain was an outlier as it saw its net loss narrow 85 per cent to Rs 1.5 crore in Q3.
Its revenue from operations rose 57 per cent to Rs 99 crore as travel picked up.
Its employee benefits increased only 16 per cent to Rs 51 crore.
Although it did not reveal marketing expenses, the company said its customer lifetime-value to customer acquisition cost ratio rose 32.9 per cent to 11.3 in Q3.
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