The Next Compounders

Summary: Platform companies have rewritten the rules of business—scaling fast, burning cash and defying traditional metrics. But only a few can turn growth into enduring compounding. This story builds a framework to separate India’s next long-term winners from those still riding the hype.

Summary: Platform companies have rewritten the rules of business—scaling fast, burning cash and defying traditional metrics. But only a few can turn growth into enduring compounding. This story builds a framework to separate India’s next long-term winners from those still riding the hype. A decade ago, a company that lost money quarter after quarter would’ve been laughed out of Dalal Street. Profits were worshipped and cash burn was heresy. But markets, like faiths, evolve. Today, a new breed of platform businesses, from food delivery to fintech, are making investors believe in delayed gratification; that profits can wait for the end reward. And some of the world’s biggest wealth creators lend credibility to this belief. In the late 1990s, Amazon was dismissed as an online bookseller with mounting losses. Google was criticised for prioritising user scale over immediate growth. But investors who believed in these stories were the ones to laugh their way to the bank. In India, too, new-age upstarts are finding conviction not just from retail investors but also those with big pockets, with a steady rise in institutional ownership. That doesn’t mean you should dive in headfirst. For every Amazon and Google, there are dozens of others that vanish. The real challenge for investors is to spot which are compounders in the making and which are only performers of the moment. Our framework in this story will help you do exactly that. Why new-age businesses are worth a look Global platforms show what’s possible: At its peak, video store chain Blockbuster ran over 9,000 stores worldwide. Then Netflix appeared, first as a DVD-by-mail service, later as a streaming platform. By removing friction, scaling through data and owning the viewer relationship, it didn’t just knock Blockbuster out of the market; it reinvented the entertainment business. That story captures why platforms matter. Traditional firms scale linearly, adding more factories, capital or stores. Platforms scale exponentially. Once the core architecture (app, data, users) is built, every new participant adds value without proportionate costs. And each additional user strengthens the ecosystem with word of mouth, pulling in more people, essentially turning scale into a moat. This self-reinforcing dynamic, called the ‘network effect’, fires up growth as operating leverage kicks in and profits compound while costs grow more slowly. That’s how Google became the default search engine, Amazon the global marketplace and Meta the social square. And the rewards, when they endure, are spectacular. Amazon has delivered over 5,000 times returns since listing; Netflix 1,000 times and Google more than 100 times. Not just that, the top five US companies by market cap today are digital or platform-led businesses, a complete overhaul from three decades ago. India’s opportunity: Indian platform companies are seeing the same network effect unfold. Take Zomato (Eternal) for example: every new restaurant listed expands choice for diners, attracting more users. More users mean higher order volumes, which bring restaurants more visibility and revenue, prompting still more listings. Increased orders improve delivery efficiency and lower cost per delivery, enabling faster service and sharper discounts, which pull in more customers. By FY25, Zomato had 2.9 lakh restaurant partners and 21 million monthly users. Its profit per order (after delivery costs and discounts) rose from Rs 7 in FY22 to Rs 36—a fivefold improvement. Scale, efficiency and loyalty are now reinforcing each other in a self-perpetuating loop. Fund managers are paying attention: Institutional investors are taking notice. Active mutual funds, once wary of loss-making tech names, are now taking meaningful positions. Zomato’s stake rose from 12.3 per cent in December 2023 to 17.4 per cent by August 2025, with the number of active schemes holding it jumping from 199 to 352. Paytm’s (One97 Communications) ownership grew from 42 to 127 schemes. PB Fintech and Nykaa (FSN E-Commerce Ventures) show similar traction. (See ‘Backed by big guns’ graphic.). Fund managers are backing the story of network-driven scale and defensibility—the structural advantage that can turn growth into compounding returns. The market is starting to price in the potential that has already created enormous wealth globally. Survival of the fittest: Not every platform will endure For all the excitement around these platform businesses, conviction alone doesn’t guarantee success. History suggests that every boom breeds a reckoning and only a few make it through. Just because a business is first to the market or growing fast doesn’t mean it will dominate in the long term. Investors must remember: scale today does not guarantee endurance tomorrow. Consider Blockbuster and Netflix again. Being first to the market didn’t save Blockbuster. Netscape and Yahoo were early internet pioneers, but Google outperformed them with a superior product and monetisation model. Of the 2,600 high-tech businesses that were founded in Silicon Valley during the dot-com frenzy of the 2000s, fewer than one in five survived by 2009. Globally, the pattern is clear: only the disciplined, differentiated and adaptable survive. This consolidation has occurred in India, too. The food-delivery sector once teemed with hopefuls: TinyOwl, Foodpanda, PepperTap, Delyver, LocalBanya and more. All had funding and ambition but most shut down, merged or were acquired. Today, the market is largely a Zomato-Swiggy duopoly. Exuberance attracts capital, but only the resilient turn it into a sustainable advantage. Price is part of the battle Even among the survivors, paying any price for growth can destroy returns. That’s why valuation also matters in this Darwinian race. Traditional metrics like P/E or P/B rarely work for these businesses because profits arrive late, and sometimes, only in pockets. A more sensible lens is price-to-sales or EV/EBITDA but even these tell half the story unless weighed against market opportunity and a path to profitability. One without the other distorts value. A firm with a vast opportunity but no clear path to profitability risks being all promise and no payoff. Conversely, one that’s already profitable but capped by a small addressable market risks stagnation. The true north for every company, old or new, digital or traditional, is free cash flow. That’s where real value resides. The sooner and stronger a business can convert its model into cash, the more it deserves to be valued for longevity, not hype. Lesson for investors: don’t assume today’s market leaders will be tomorrow’s winners. Focus on the ones with strong unit economics and path to profitability—the true markers of sustainable advantage. It’s this principle that underpins our framework, designed to separate platforms with real staying power from those that are merely performing in the moment. Building a framework, case by case We went business by business, analysing new-age companies that have been listed for at least a year—long enough for initial hype to fade and real performance to emerge. We looked beyond headline growth to see whether scale was translating into improving fundamentals. That meant checking unit economics, margin trends, loss reduction and the trajectory toward profitability. We also recognised that not all

This article was originally published on November 01, 2025.