28% GST Shakes Hike’s Boat: Gaming Startup Trims 22% Workforce

Web3 gaming startup Hike has become the newest casualty of the union government’s recent 28% goods and services tax (GST) levy on online gaming.

Sources told Inc42 that Hike has culled its total workforce by 25%, or 100 employees as the company began its mass layoff exercise on Wednesday (August 9). People familiar with the development said that the retrenchments came as the gaming company was staring at a 400% increase in tax burden post the new levy. 

On the other hand, Hike founder and chief executive officer (CEO) Kavin Mittal told Inc42 that 22% of the staff or nearly 55 people have been laid off by the company.

“About ~55 people, out of which 24 are non-full time employees. Closer to ~22%. Business is in best shape ever but this 400% increase in GST is a bazooka pointed at us. We’ll need to absorb some of it and as a result the RIF at Hike/Rush”, said Mittal.

Hike operates a blockchain-based real money gaming platform called Rush Gaming Universe (RGU) that allows users to play both skilled and casual games such as ludo, carrom and quizzes.

In an internal mail accessed by Inc42, Hike founder and chief executive officer (CEO) Kavin Mittal termed the GST levy a ‘bazooka’ pointed at the company that had a ‘ big’ impact.

“We’ve continuously embraced the latest technologies… It is this approach that enabled us to counter and absorb the first black swan event of the year TDS (tax deducted at source). GST is black swan event #2 and it is far bigger than TDS. A 400% Increase in GST is a bazooka pointed at us. While we expect to absorb some of it, we can’t absorb all of it. The impact is just too big,” Mittal said in the email. 

The ‘first black swan event’ that the Hike CEO was referring to was the applicability of TDS at the rate of 30% on winnings from online games.

While noting that its competitors would end up slashing workforce count in excess of 50%, Mittal said the company had to ‘bear’ short-term pain for ‘tremendous long-term gains.’ Terming the layoffs sad, he added that the company’s ‘discipline’ had helped keep the layoffs ‘low.’

In the internal mail, Mittal also said that the company posted its ‘biggest ever month’ in July, adding that preparations were already underway on the product and business sides to take advantage of the ‘post-GST world.’

Giving a peek into the company’s financials, Mittal said that the Rush platform has ‘grown’ to more than 5 Mn users since its inception with gross revenue of INR 2,800 Cr and net revenue of INR 350 Cr (Mittal did not specify the timeline of the data). As per him, the company has been operationally (CM2) profitable since October 2022.

CM2 indicates the aggregate amount of revenue left after variable costs to cover fixed expenses. It is a metric for future profitability.

“The roadmap will be trimmed and reprioritised with some changes all of which will be concluded by the MQR. Until then, as always heads down, keep shipping. Our most exciting and successful months lie ahead of us,” said Mittal while concluding his mail. 

Hike was founded in 2012 by Kavin Mittal as an instant messaging app but later pivoted to a web3 gaming platform to cash-in on the burgeoning ecosystem in the country. Since rebranding itself in early 2021, the startup has raised capital from crypto investors such as JumpCrypto, Tribe Capital, Republic, Polygon, among others. 

The entire gaming ecosystem went into a tizzy last month after the GST Council announced its decision to impose a 28% GST on the amount being paid at the entry level for online gaming. Right afterwards, the union government also underlined plans to amend the GST Act during the ongoing Monsoon Session of the Parliament to implement the new levy, targeting an effective implementation by October 1.

Industry stakeholders lashed out at the move, warning of mass layoffs and increased tax burden for gaming companies. It all came true just weeks earlier as gaming startup MPL became the first startup to announce plans to slash its workforce by 350 to cut costs and save capital. 

With Hike also joining the layoff spree, it remains to be seen that other startups bear the brunt of the GST levy. For now, all eyes are on the gaming ecosystem, which is going through a massive churn.