Paytm‘s stock surged over 7% on Friday after it announced plans to consider a share buyback, but analysts warned it would not bring long-term relief to investors as concerns around the Indian firm’s slow path to profitability remained.
The provider of digital payment solutions has seen its stock plunge around 74% since its mega $2.5 billion IPO in November last year, at a time when tech stocks world over took a beating and questions were raised about Paytm‘s ability to monetize its platform.
Late on Thursday, Paytm said it will consider a buyback of shares on Dec. 13, saying it thinks the move will be beneficial for its shareholders “given the company’s prevailing liquidity and financial position.”
Last month, Paytm said it would become free cash flow positive in the next 12-18 months.
“This company is yet to make profits but its in a hurry to announce a buyback,” said Chokkalingam G, Founder, Equinomics Research & Advisory Pvt Ltd, adding that Friday’s stock surge was an opportunity to exit the counter.
Paytm did not respond to a Reuters request for comment. As some people criticized its plans on Twitter, the company defended the move saying it always takes “decisions keeping the long-term interest of our shareholders in mind.”
The buyback plans come as several technology stocks in India face pressure amid a rising interest rate environment and concerns over valuations. SoftBank-backed Indian e-commerce firm Snapdeal on Friday said it will pull the plug on its $152 million IPO plans due to unfavorable market conditions.
Shriram Subramanian, managing director of Bengaluru-based corporate governance advisory firm InGovern Research Services, said Paytm‘s investors should focus on its long-term fundamentals.
“Investors should look at how the company is able to make money from their business, the path to profitability and when will they become profitable rather than focusing on the buyback,” Subramanian said.
Reuters