This week, One 97 Communications, India's largest digital payment company favored by Buffett and known as the "Indian version of Alipay", hit a new low since its IPO in November last year.
This means that Buffett's first and only investment in India is losing 50% of the huge loss, and even some media assert that "Buffett's investment debut in India has completely failed."
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"India's Alipay" Paytm hit a new low, plummeting 61% after going public in November last year, and Buffett's position was cut by the value
In September 2018, Buffett's Berkshire Hathaway invested $300 million in Paytm's parent company through its investment subsidiary BH International Holdings to acquire 2.6% of the shares or 17.02 million shares at an average purchase price of Rs 1279 per share, valuing Paytm's parent company at $10 billion at the time, and Buffett's first investment in India also led to a local fintech boom.
When Paytm went public on the Indian stock market on 18 November 2021, Berkshire Hathaway took the opportunity to sell 1.4 million shares at the IPO issue price of Rs 2,150 per share, which was set at the top of the guidance band, which equated to a direct profit of $16 million, or 68% of the return.
Despite Paytm's 27 percent plunge on the first day of its IPO, Buffett's remaining holdings (15.62 million shares or 2.41 percent of the parent company's equity) are still worth $330 million, higher than the investment cost three years ago. Paytm set a record for the size of an IPO in the Indian stock market last year.
But Paytm closed down nearly 2 per cent on Friday, with its share price below $834, the lowest since its listing, plunging more than 61 per cent from its IPO offering price and 57 per cent down from a 52-week high of Rs 1,955 just days after the listing. This also means that Paytm has been in a "break" state since the first day of listing.
That puts Berkshire's stake in just over Rs 130 crore, or $147 million, a loss of more than 50 per cent compared to its initial investment of about $300 million.
Founder Vijay Shekhar Shams, who holds an 8.6 percent stake in Paytm's parent company, has shrunk his net worth by about $1.5 billion since the company went public, or more than 50 percent.
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Losses widened in the fourth quarter of last year, profitability was far away, and Buffett's investment in another Brazilian fintech company also fell 55% after going public.
The analysis said that the collapse of Paytm's stock price after listing is not unrelated to the loss of confidence of retail investors, the company has not been profitable since its establishment in 2010, and there is no sign of profitability in the short term.
Coupled with the situation in Russia and Ukraine, which has made risk aversion high, global technology stocks due to the imminent tightening of policies by major central banks such as the Federal Reserve, and the subsidence of the epidemic is not conducive to "home economy stocks", Paytm has many difficulties in the future.
Paytm's latest financial report released on February 5 showed that the company's consolidated revenue from operations increased by nearly 89% year-on-year to Rs.14561 crore in the third quarter of fiscal 2022 as of the end of December last year, but the combined loss for the same period was Rs.7785 crore, an increase of nearly 46% from the loss of Rs.5355 crore in the same period last year. Experts believe that losses are bound to increase in the context of increased costs and administrative costs.
After the earnings report, Macquarie Research, which has been singing the praises of Paytm and has a greater influence on its stock price, cut its target price for the third time, cutting 22% to Rs 700 per share from Rs 900 per share and raising the company's loss expectations for fiscal 2022-2026 by 39% to 101%. The investment bank believes that paytm's business model lacks focus and direction, and achieving profitability is a huge challenge.
Goldman Sachs' view of Paytm is generally bullish but contradictory, with the stock rating upgraded from "neutral" to "buy" but last week slashing its price target from Rs 1600 per share to Rs 1460.
Goldman Sachs believes that Paytm's revenue has strong growth prospects and attractive risk-rewards after a sharp drop in stock prices. The investment bank raised Paytm's revenue forecast by 7 to 10 percent and said it could reach adjusted EBITDA breakeven in fiscal 2024-2025 and the company was less likely to need to refinance due to its strong balance sheet.
In addition, JPMorgan Chase & Co. was more bullish on Paytm, rating it as "overweight" in a January research report, setting a target price of Rs 1,850 per share, significantly higher than other peers such as Goldman Sachs and Macquarie, citing paytm's share price being lower than that of private counterparts and global competitors.
According to public information, Buffett's Berkshire Hathaway invested in two financial technology companies in 2018 with $600 million, in addition to Paytm, there is also The Brazilian digital payment company StoneCo, which was facilitated by investment manager Todd Combs.
However, StoneCo, which was listed on the NASDAQ in October 2018, entered a downward channel after February 2021, falling more than 3% today, trading at less than $11, and also falling 55% from the IPO price of $24 per share and the lowest since the listing.
Buffett has said he is not good at investing in technology and regrets not investing in tech giants like Alphabet and Amazon. Wall Street Insight Paid Article has analyzed that investing in Paytm is small, and Buffett has joined a war that will determine the future of India's retail industry.