Can a white knight save UangTeman from its troubles?

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24 Nov, 2021
Tech in Asia

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Hello there ,

The pandemic hasn’t been kind to us, but for some companies, there have been silver linings.

Take Vouch, for instance. Once just a chatbot builder, the firm found its product-market fit in the thick of a global crisis, two years after it pivoted to become a provider of digital concierge services for hotels. In February, Vouch said it has grown sevenfold since the start of the pandemic.

As people like you and me started buying from the comfort of our homes at a frequency like never before, ecommerce and online grocers got a huge boost, and so did digital payment services.

But for other companies, it has been a struggle.

The last few years have been rough on Indonesia’s UangTeman, and the pandemic hasn’t made things easier, as Putra details in this week’s big story.

The online lender is no stranger to controversy. It saw an exodus of senior staff in 2018 and faced a lawsuit earlier this year (which was later withdrawn). But it has bounced back from these setbacks, securing new capital and welcoming new high-profile executives.

But the startup may be on the brink of collapse this time, with salaries owed to employees, income taxes for the staff left unpaid, and its business at a standstill.

Will it rebound? Read on to find out.

— Melissa

THE BIG STORY

 

UangTeman on the brink of collapse, pins hope on white knight

Image credit: Timmy Loen

The Indonesian lender is no stranger to tough times. But as its business gets hammered by the pandemic, the startup may be running out of lives.

THE HOT TAKE

 

Paytm’s massive IPO flop


Here’s what happened:

  • The India-based digital payments startup plummeted for the second day in a row after its US$2.5 billion public listing on the local National Stock Exchange (NSE) last Thursday.
  • Retail investors suffered a loss of more than 4.6 billion rupees (US$62 million) in Paytm’s first day of trading, making its performance the worst among IPOs in the past decade.
  • As of Monday noon, Paytm shares had dropped more than 30% from its IPO price.

Here’s our take:

India’s stock market appears to be on a roll this year as a slew of private companies went public one after another.

Food delivery startup Zomato surged over 80% on the day of its listing in July, valuing the company at US$12.2 billion. It was 38x subscribed.

Online beauty platform Nykaa sought to raise over US$700 million in its initial public offering in early November. It was also oversubscribed – by 82x – and jumped 80% on its first day of trading.

After Paytm made its debut last week, however, the hot streak seems to have fizzled out.

Demand for the fintech firm’s shares was comparatively muted – it was oversubscribed by just 1.89x. Paytm had wanted to go down as the largest India IPO in history at a valuation of US$20 billion. But did it overextend itself?

An hour before shares of One97 Communications – Paytm’s parent company – began trading on November 18, brokerage house Macquarie published a damning report highlighting the firm’s unclear path to profitability, its high cash-burn business model, and the lack of market leadership in any vertical aside from its e-wallet business, among others.

Macquarie analysts also gave the firm a price target of 1,200 rupees – 40% below its issue price.

Paytm, one of the winners of India’s controversial demonetization drive in 2016, operates the most widely used e-wallet in the country.

But its cloud and commerce services vertical, which includes ticketing and deals, advertising, and enterprise solutions, contribute a small but growing share of total revenue.



 

Paytm founder and CEO Vijay Shekhar Sharma knew that compared to ecommerce or food delivery firms, his company’s business model was relatively less understood by public market investors. In hindsight, its business and profitability plans could have been better articulated, sources say.

Whatever the case, the rout has certainly spooked investors and other soon-to-list firms. MobiKwik, a direct but smaller competitor of Paytm in the payments space, said on Tuesday that its debut – initially scheduled this month – will be delayed by two to three months or even till the next financial year. MobiKwik will wait for a time “when [it] feels we are going to have a successful IPO,” founder and CEO Bipin Preet Sigh told Reuters.

The move will prompt millions of mom and pop investors in India to rethink blindly placing bets and cashing in on a red-hot IPO market, which has encouraged “new age” tech companies – many of them still loss-making – to seek public listings.

“Go back to the basics – profits, free cash flow, PE multiples,” billionaire Harsh Goenka wrote in a Twitter post after Paytm’s share plunged. ​​ On Monday, Macquarie put out a second report defending its price target and “underperform” rating on Paytm.

Paytm’s gross merchandise value (GMV) grew 112% year on year, but Macquarie estimates that 66% of that volume is dominated by UPI-based transactions. Paytm does not earn fees from these transactions, and its loan disbursement metrics also fell below estimates. “We do not see the strong reported GMV growth materially affecting our P&L estimates,” analysts wrote.



 

In the aftermath, Sharma held a town hall on Friday – a public holiday in India – urging Paytm employees to look beyond the company’s first-day performance.

He cited Tesla as an example of a company that has outperformed the short-sellers betting against it. As of Tuesday, Tesla’s stock was at US$1,156.87, up 4,838% since the close of its first day as a publicly traded company.

But Tesla is listed on Nasdaq, which has a greater tolerance for high cash-burn companies where profitability is a long-term prospect.

— Melissa

MORE NEWS YOU SHOULD KNOW

Also check out Tech in Asia’s coverage of the fintech scene here.
 

1️⃣ Ex-WeWork exec’s BNPL firm bags $40m in series A round

Singapore-based Pace plans to hit a target of US$1 billion in GMV run rate and grow its user base by 25x by 2022.
 

2️⃣ Pathao launches BNPL service for food delivery

The Bangladesh-based digital services platform has rolled out a pay-later product for select users of Pathao Food. It also plans to expand the offering to its other services, including ride-hailing and logistics.
 

3️⃣ Visa tumbles on Amazon ban in UK as fight on card fees expands

The ecommerce giant will stop accepting purchases made via UK-issued Visa credit cards starting next year, thanks to the high fees charged by the payment network to process transactions.
 

4️⃣ SG-based payments firm banks $10m in series A money

Pomelo Pay, which helps merchants accept both digital and physical payments at near-zero costs, has processed over US$500 million in payments this year. The company is also based in the UK.
 

5️⃣ Sequoia-backed Airwallex bags $100m top-up to series E round

The latest funding brings the B2B fintech platform’s valuation to US$5.5 billion. The new funds will go towards Airwallex’s global expansion and potential M&A activity.

That’s it for this edition – we hope you liked it! Do also check out previous issues of the newsletter here.

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