How do you even value loss-making tech stocks like Paytm or Swiggy? Are they just a gamble?

Question

I see all these new-age tech companies and quick commerce apps or Payments apps.

They are burning massive amounts of cash.Yet their stock prices keep jumping around and getting high valuations.

I have Rs 5L I want to allocate to high-growth bets.

How do professionals actually value these businesses if there are no current earnings?

Sachin Kabra · Accepted Answer

These are network-effect businesses that operate at a loss in their initial phases to aggressively build a massive customer base. Once scale is achieved a slight tweak in unit economics can drive massive profitability.

To value them you must forecast into the future rather than looking at today's negative earnings. You estimate when the company will achieve a steady-state ROE such as hitting a 20% ROE by the year 2030. You then assign a fair valuation multiple for that future state and discount it back to today's value.

The extreme price volatility seen in these stocks post-IPO occurs because the market is constantly recalibrating these future economic models. Every time new competitors enter or business strategies evolve the market adjusts its long-term assumptions.

Finding the next massive wealth creator requires looking for a massive sticky client base and the potential for strong underlying cash flow generation. They also need the ability to redeploy those cash flows into new highly profitable business lines rather than just paying it out as dividends.

Disclaimer: All information shared above are strictly for educational and informational purposes only. It should not be construed as financial or investment advice.

How do you even value loss-making tech stocks like Paytm or Swiggy? Are they just a gamble?

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