The curious case of Google Pay’s profitability in FY19

Consumer-facing digital payments space has been a hyper-competitive segment as Paytm, PhonePe and Google Pay locked in a battle to command more market share. Since driving growth is a primary priority for the trio, all are bleeding profusely. 

While Paytm lost Rs 2615.34 crore in its payment business in FY19, PhonePe is yet to file its financials for the year ending March 2019. The Flipkart-owned company is expected to post a staggering loss in FY19. For context, it lost Rs 791 crore in FY18.

Media reports suggested that Google Payments India operates Google Pay in India, however, it's Google India Digital Services Private Limited (GIDS) that operates G Pay. GIDS has filed its annual report for FY19 and, unlike others, its financial annual return is quite an intriguing one.

Prima facie, the Google-owned payment firm’s financials reflect a net profit of Rs 5.1 crore with a revenue of Rs 1,119 crore in FY19, growing 2.5X as compared to Rs 438.34 crore in FY18.

But there’s more to the story as these numbers have little to do with Google Pay’s actual operational revenue. 

Almost all of this money has been received from its Singapore based parent entity - Google Asia Pacific (GAP). Around 92% (i.e Rs 1028.83 crore) came in the form of reimbursements for cash rewards, Rs 28.2 crore from interest on deposits.

The rest Rs 59.25 crore were received for providing business support services to GAP, which is the primary business objective of the company. Further, it received another Rs 22.4 crore for reimbursement of cruiser rewards that the Indian entity paid during last year.

Google Pay services are essentially operated by the Singapore based GAP and its Indian subsidiaries only provide ancillary services. The Indian entity under which Google Pay is registered spent only Rs 11.62 crore on employee benefit expenses.

Isn't the figure small? Google Pay must have hundreds of employees looking after its tech, marketing-sales, ops and partnership departments. 

For perspective, PhonePe spent Rs 135 crore on employee benefits in FY18 while Paytm incurred Rs 856 crore on employees’ salaries in FY19.  It seems like most of the work done by employees who are on Google subsidiaries’ payrolls.

Burning cash has been the primary driver for the windfall of transactions that the company processed in the last fiscal. On the lines of revenue, its total expenditure also surged by 2.6X to Rs 1,111.31 crore in FY19 from Rs 430.17 crore in FY19.

While Net cash flows from operations have also been positive in the last two fiscals, the figure has slumped around 40%, to Rs 33.96 crore in FY19.

 Significantly, the company has spent Rs 1,028.83 crore on cashback and rewards alone. Cashbacks, which were reported under ‘miscellaneous expenses’ in the annual filings accounted for 92.5% of the total expenditure of Google Pay in India. 

Google Pay’s biggest liability is a short term loan from Google India Private Limited that stands at Rs 459.3 crore. Separately, it also owes another Rs 40.39 crore to Google India for unpaid dues of interest expense, consultancy services and for advertising and marketing.

Google Pay’s total assets grew marginally to Rs 603.37 crore in FY18 from Rs 561.4 crore in the preceding fiscal. It maintains 94.07% of the assets in cash and bank balances and owns no fixed assets. 

Nevertheless, a question remains how has Google Pay been able to post profits for consecutive fiscals? While this question could only be answered by Google, the company chose not to answer Entrackr’s detailed queries.

The reasons for the company showing a profit could be several, including Google’s complex organisational structure and involvement of multiple entities.

Entrackr has tried to ascertain the actual financial health of Google Pay through its filings in Singapore. However, GAP is yet to disclose the independent break-ups for Google Pay.

While the financial reporting by Google Pay in India is vague, chances of it achieving a profit on books are full of doubts.

It certainly raises a question in the absence of clarity. Financials of the two digital payments majors Paytm and PhonePe, which are deep into losses, are cases in point explaining where the question is coming from.