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Buy Now Pay Later (BNPL): The battering continues

Buy Now Pay Later (BNPL): The battering continues

The tough conditions I wrote about several months ago affecting the Buy Now Pay Later (BNPL) Sector appear to have gotten a lot worse, and the share prices or valuation of the following five companies have taken a battering, with an average decline approaching 90 per cent from the peak.

 

Name of Company

Share Price/ Valuation Peak

Date of Peak

Share Price/ Valuation – 12/7/22

Decline

Block Inc. (Afterpay became a subsidiary in January 2022)

US$281

January 2021

US$63

-78%

Klarna – Swedish-based private company

US$45.6b

May 2021

US$6.7b

-85%

Affirm Holdings

US$168

November 2021

US$21

-88%

ZIP Co

$13.92

Feb 2021

$0.52

-96%

SEZZLE Inc

$11.63

Feb 2021

$0.26

-98%

 

 

 

 

 

5 STOCK SAMPLE

 

 

 

-89%

To recap, Nick Molnar and Anthony Eisen did an extraordinary job in timing the sale of Afterpay to Square, at a ratio of 0.375 shares in Square class A common stock for each Afterpay share. The transaction was announced in late-July 2021, when the re-named Block Inc. share price was US$250 and was completed in late-January 2022 which by then saw the price of the shares halve to US$120.  Since then, the share price has halved again to US$63.

In the December 2021 half-year Afterpay recorded $645 million of total income, of which $78 million was attributable to late fees. Income was up 55 per cent and late fees 117 per cent, respectively, from $417 million and $36 million, in the six months to December 2020.

However, the company’s losses increased dramatically from $79 million in the December 2020 half-year to $345 million in the December 2021 half-year. This blow-out was largely attributable to bad debts from impairments of receivables which jumped by $105 million to $177 million whilst marketing costs (+$69 million) and employment expenses (+$49 million) also blew out.

Look out for Block’s results, due on 4 August.

Earlier this week Swedish-based Klarna, raised US$0.8 billion from new investors Mubadala, the UAE Sovereign Wealth Fund and the Canadian Pension Plan Investment Board in addition to existing investors including Sequoia and CBA.  This raising valued the private company at US$6.7 billion, an 85 per decline from the US$45.6 billion valuation attributed to it at the funding round led by Japan’s SoftBank just over twelve months ago.

In May 2022, Klarna, with 150 million customers globally, cut ten per cent of its 7,000 strong workforce, indicating a tumultuous period for the company.

And yesterday, the proposed marriage of convenience between Zip (share price down 96 per cent in 17 months from $13.92 to $0.52) and Sezzle (share price down 98 per cent from $11.63 to $0.26, also in 17 months) ended before the two parties got down the aisle. Zip will pay Sezzle US$11 million for the pain. The two companies have a current market capitalisation of A$358 million and A$53 million, respectively.

At 31 March 2022, Sezzle Inc had a bank balance of US$58 million with total cash on hand declining by US$18 million in the March 2022 Quarter. Given the likely increase in bad debts from the impairment of receivables for the entire sector, one can understand why Zip called the wedding off.

Read my previous article: Share prices within the buy now pay later sector to continue to struggle

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Chief Executive Officer of Montgomery Investment Management, David has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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