Paytm expects losses to continue; Info Edge bats for startups

In last 6-9 months, start-up companies are now trying to become smarter about marketing and are cutting down on advertisement and hiring costs in order to start on the growing path, Hitesh Oberoi, CEO & MD of Info Edge said. However, Oberoi believes that it will still take time for online companies to start making profits. Vijay Shekhar Sharma, Founder & CEO of Paytm, said that the they are investing more funds into growth and hence, losses are expected to continue. Demonetisation has not given extra revenue to Paytm and extra losses will have to be covered in 2017 by the company, Sharma said. Below is the verbatim transcript of Hitesh Oberoi and Vijay Shekhar Sharma’s interview to Ekta Batra and Surabhi Upadhyay on CNBC-TV18.Ekta: Are there going to be some companies which might just go belly-up within the internet space come 2017 simply because of the increasing losses that we are seeing? Oberoi: You are right. Losses went up substantially at internet companies over the last two years. However, this was also because was funding was freely available. However, what has happened over the last six to nine months is that most companies have understood that they need a path to profitability if they have to survive in the long run. I can tell you that many of them are actually working on cutting their losses.Ekta: How are they cutting losses, how exactly are they becoming asset light at this point in time and when exactly would they even breakeven on the bottomline according to you?Oberoi: What was happening was because there was hyper competition, companies were spending a lot of the money they had raised. If they were ecommerce companies, they were giving massive discounts; otherwise a lot of the money was being spent on marketing and advertising.So, what has happened over time is because now there is pressure to sort of shore up the topline and accrue the bottomline, companies are getting smarter about discounting, companies are getting smarter about advertising and marketing, they have got spend, they have got the burn, they are not hiring as many people as they were hiring people earlier, they are not paying salaries as crazy as what they were earlier.So, in general, what I can tell you is that most of these companies, of course they are very far away from becoming profitable, they are yet to get to breakeven, it will take them a while, but they are working on cutting the burn and they are working on growing their topline.Surabhi: It is a note by Kotak and it is kind of raising the obvious questions which are on people’s minds that while sales are growing, the question is the rate of burn, the rate of losses is increasing. Is that going to change in 2017 and we talk to you at a time where there is this growing debate of capital dumping, there seems to be a tirade against companies that have backing of international big money bags?Sharma: I treat technology as an infrastructure investment. When you are changing a habit, you are nearly building a new road. Companies which go ahead and build that kind of moot in their business, they take time to build a sustainable, profitable business. I don’t think anybody who was dreaming for five years of not breakeven and they were expecting breakeven before five years were supposed to be even in the game or they were probably in the game so that they can flip into some other company.I believe that companies will continue, those who are winning the market will become far more aggressive and spend even more into 2017 and those who do not have what it takes to fight the large money, they will continue to cut back the losses and start to float or find a buyer for them.Surabhi: I want to ask you about what are you doing beyond your three portal, 99acres, Naukri and Jeevansathi because at your end, Info Edge has been making increasing investments in a lot of startups. There is Diro Labs, Vcare, Mydala, I believe you have an investment in Policybazaar and Zomato -- is that policy going to change, these niche investments that you have been making given the fact that there is a struggle at the operational level?Oberoi: If you look at what is happening to Info Edge, the business that we run inside the company, now, most of them are either breaking even or making money now. So, it has been a long road of course for 99acres and for Jeevansathi. Jeevansathi broke even last quarter, 99acres is flirting with breakeven -- it is getting there almost. So, far as our internal businesses go, they are mostly profitable or getting there.We have also been investing outside like you said for the last few years, we made about 13-14 investments and there are like in any portfolio, there are some companies that are doing well and some which are not doing so well. You mentioned Zomato early on – Zomato there was a point in time when Zomato was burning USD 7-8 million a month. However, now the burn of Zomato has down to a USD 1 million a month and they have also managed to double the topline at the same time. So, I guess a lot will depend on how people run their businesses and what is their philosophy.There are some sectors which require a lot more investment like Vijay said because you are building for the long term but there are enough other internet businesses where if you do a good job of running a business you can not only grow your topline but also make money.Surabhi: What will your financials look like in 2017 especially post demonetisation because you are one of the biggest beneficiaries of that to take place in the digital world and would you have enough funds to maybe buy out a couple of your smaller players?Sharma: Two things, 2016, I remember, we spent Rs 2,600 crore, reaching 2,600 crore there and we had losses of about Rs 1,500 crore some extra cost. If you look at 2017, both numbers will be higher because we are spending lot more money than we have spent last year as we speak. Remember, demonetisation has not giving us extra revenue because we are growing the market and spending money in the market, so, we will have extra losses to take care of it, not extra revenues to earn if you notice there.Now, talking about the money to buy smaller player, I don’t think that we have interest to buy any smaller player at all absolutely there because I believe that kind of market share that we are sitting at it and the kind of market lead and kind of business that we are in, we don’t need competition to be acquired.I am personally a person who would believe that building is better than acquiring. So, we have always remained as a builder of the sector, builder of a technology, builder of business; never grown up out of acquiring. So, we will remain averse to acquiring companies even in 2017.Surabhi: Will Zomato make money in 2017?Oberoi: If they want to, they can but they may want to become more aggressive, enter new market and launch new services but if they want to I am sure they can.