- You may be overpaying for growth if you ignore PhonePe's revenue per user gap.
- Paytm's lower multiple (9.8x) offers a more attractive risk‑reward profile.
- Merchant‑led monetisation is the new battleground for Indian payment platforms.
- Historical IPO performance suggests that lofty valuations can trap retail investors.
- ESOP and cap‑ex burdens could erode PhonePe's profitability for years.
You’re about to discover why PhonePe’s looming IPO may be the market’s next cautionary tale.
Why PhonePe’s Valuation Stands Out in the Digital Payments Landscape
PhonePe has filed a draft red‑herring prospectus aiming for a $13 billion valuation, which translates to roughly 18.7× its H1FY26 annualised revenue (excluding discontinued lines). By contrast, Paytm floated at a 9.8× multiple. The disparity is not merely a number‑crunching curiosity; it reflects fundamental differences in how each platform extracts cash from its users.
PhonePe boasts 238 million monthly active customers (MACs) and a healthy 37 transactions per user per month. Yet its revenue per MAU is just ₹21.4, one of the lowest among Indian consumer‑internet firms. This low per‑user yield indicates that the platform’s massive user base has yet to become a meaningful profit engine.
Furthermore, about 18% of PhonePe’s H1FY26 revenue comes from non‑core streams—Real Money Gaming, rent‑payment incentives, and PIDF subsidies—that the company plans to drop. Stripping those out leaves PhonePe’s core revenue 17.6% lower than Paytm’s, sharpening the valuation mismatch.
How Paytm’s Business Model Beats PhonePe on Profitability and Risk‑Reward
Paytm’s revenue mix leans heavily on merchant services (76.4% of H1FY26 revenue) and a mature payments‑gateway ecosystem. This focus delivers higher revenue per user and better operating leverage. Although Paytm’s EBITDA before ESOP costs sits at ₹2.8 billion—only slightly above PhonePe’s ₹2.5 billion—their loss after ESOP and depreciation is a modest ₹0.9 billion versus PhonePe’s staggering ₹21.2 billion.
The disparity stems from two cost‑structure levers. First, PhonePe’s ESOP expense ballooned to ₹18.1 billion, dwarfing Paytm’s ₹0.65 billion. Second, PhonePe’s depreciation & amortisation (D&A) of ₹5.7 billion outpaces Paytm’s ₹3.0 billion, reflecting heavier cap‑ex on data centres that have yet to generate operating leverage.
From an investor’s perspective, Paytm’s lower multiple, higher merchant contribution, and tighter cost profile create a more compelling risk‑reward balance, especially when the brokerage firm Emkay maintains a “Buy” rating and sees upside above ₹1,500 per share.
Sector Trends: Merchant‑Led Monetisation and the Shift Away from Consumer Revenue
The Indian digital payments arena is moving from consumer‑centric fee models to merchant‑driven revenue streams. PhonePe’s merchant revenue rose from 14.7% in FY23 to 38.1% in H1FY26, a respectable jump but still trailing Paytm’s 76.4% share. The gap matters because merchant services—POS, aggregation, and gateway fees—tend to be less volatile and more scalable than consumer‑side commissions.
Simultaneously, both platforms are expanding loan‑distribution capabilities. PhonePe’s loan book contributed roughly 9% of H1FY26 revenue, up >100% YoY, after a costly pivot from insurance distribution (₹1,000 crore investment). Paytm, on the other hand, built its loan engine earlier, benefitting from network effects and a richer data set.
Investors should watch the trajectory of merchant‑plus‑loan ecosystems. Companies that can bundle payments, credit, and value‑added services for merchants will capture higher margins and defend against the low‑yield consumer traffic that currently drags PhonePe’s per‑user numbers down.
Historical IPO Lessons: What Paytm’s 2021 Debut Teaches About Valuation Gaps
Paytm’s own IPO in November 2021 opened at a 9% discount to its issue price and sank 27% on day one, ultimately trading about 48% below the issue price. The market punished an overly optimistic valuation that did not reflect the firm’s earnings trajectory.
Yet, Paytm has staged a comeback, delivering a 176% total return over the past two years and a 53% rally in the last twelve months. The recovery underscores two points: (1) a deep‑discount entry can yield outsized upside if fundamentals improve, and (2) investors who focus on revenue quality and cost discipline are better positioned to capture that upside.
PhonePe’s planned $13 billion valuation is higher than Paytm’s IPO cap, but the underlying fundamentals—revenue per user, cost base, and sustainable merchant mix—are weaker. History suggests that a premium multiple without comparable earnings power invites a correction.
Investor Playbook: Bull and Bear Cases for PhonePe vs Paytm
- Bull Case – PhonePe: If merchant adoption accelerates, loan‑originations scale above 150% YoY, and cap‑ex yields operating leverage, the company could justify a 15×‑20× revenue multiple. Early‑stage investors could capture upside before the market fully prices the turnaround.
- Bear Case – PhonePe: Persistent low revenue per MAU, high ESOP dilution, and lingering D&A expenses keep EBITDA negative. A stalled merchant rollout forces reliance on discontinued RMG and rent‑payment subsidies, eroding investor confidence and potentially driving the stock below issue price.
- Bull Case – Paytm: Established merchant ecosystem, lower multiple, improving loan book, and manageable cost structure create a stable platform for incremental earnings. The stock’s current discount to issue price offers a margin of safety with upside potential if the company beats earnings estimates.
- Bear Case – Paytm: Regulatory scrutiny on its payments‑bank arm and macro‑economic headwinds could compress margins. If loan‑growth slows or merchant churn accelerates, the upside may be limited.
Bottom line: While PhonePe’s hype is undeniable, the numbers tell a cautionary story. Savvy investors should weigh the premium valuation against the company’s nascent merchant and loan engine, and consider the more disciplined, lower‑multiple alternative that Paytm presents.