PayTM Could be Entering a Low Cost-High Profit Margin Regime

While Paytm continues to struggle to make profits or even deliver positive returns to its shareholders, a brokerage firm believes it will soon reach its breakeven point with modest expenses.

JP Morgan analysts believe that sustained improvement in profit margins of 35 percent in the last two quarters has set the stage. Its profit margins were a healthy 35% in the fourth quarter of last year.

“We believe a sustained improvement in the profit margin contribution at PayTM seen over the last two quarters sets the stage for operating leverage Q2F23 onwards as indirect costs moderate - resulting in a consistent downtrend in adjusted EBITDA loss and an eventual path to breakeven,” said a report by JP Morgan.

Since its inception 11 years ago, the company has been losing money, and its acquisition costs have been high, as with most startups. However, most startup investors focus on unit economics — and improving profit margins, which demonstrate that its business can generate revenue, is reassuring to its many nervous shareholders.

The Noida-based fintech firm's stock dropped 53 percent in 2022, making it one of the worst performers. However, according to the brokerage firm, the tide appears to be turning, albeit slowly.