Is there a bubble around BNPL Space – A look at APT, SZL, Z1P, OPY

  • Jul 03, 2020 AEST
  • Team Kalkine
Is there a bubble around BNPL Space – A look at APT, SZL, Z1P, OPY

Summary

  • In recent times, amid coronavirus crisis BNPL stocks have been swinging and rising up in terms of valuation due to the surge in demand of BNPL products and solutions.
  • Afterpay and Openpay shares have surged more than 665% and 631%, respectively (from 23 March to 2 July 2020), while ZipCo shares have soared 286% and Sezzle shares by whopping 1000% during the same period.
  • BNPL stocks under discussion have a high market cap when combined together, yet the companies are not making profits, which might inch the sector towards risk.

The economic fallout as a result of COVID-19 pandemic has increased the number of companies and consumers trying unconventional payment options- particularly the millennials, for quicker and easier access to credit. Amid rising job losses, cuts in consumer’s spending ability and company revenues, many firms are working towards making transactions inexpensive and easier for which BNPL products are practical solutions. 

The option of BNPL turns single large purchases into many smaller transactions, often without interests if paid off quickly. Such payments give a sense of stability to consumers and retailers in challenging times of COVID-19. Recently, BNPL stocks have gained momentum with a significant increase in customer base and sales.

The BNPL sector has been showing massive gains of late, which does pop up questions like if the real value has doubled or increased even more since March for the firms in the related space.

The BNPL companies have high market capitalisation, but are not making any profits now, which is similar to the tech bubble of the 2000s. Also, the small-cap companies are particularly prone to such bubbles. A bubble is an economic phase characterised by swift acceleration of asset prices followed by a contraction.

Let’s have a look at some BNPL stocks that have soared since March this year amid COVID-19 crisis.

Afterpay Limited (ASX:APT)

Afterpay share price has jumped from a low of $8.9 on 23 March to $68.16 on 2 July, soaring by more than 665% as the payments firm has gained a lot from the increasing shift towards digital payments method.

On 23 June, Clearpay which is part of global instalments payments group Afterpay announced that it has more than 1 million active consumers in the UK who are using their service. Clearpay became one of the fastest-growing e-commerce payment companies in the European market after being launched in the UK just a year ago.

ALSO READ: Afterpay Shares from $56 to where: Dichotomy for Pay later or Regret Later

As per the Company’s trading update dated 21 May, Afterpay has more than 5 million active consumers in the US who are using the service at APT merchant partners, ~9 million US customers who joined the platform (included over 1 million new US customers) utilising the platform between 1 March to 15 May amid COVID-19.

As reported during May, above 15,000 brands, as well as retailers had been recommending or were in the process of offering Afterpay to their customers. APT helped merchants in processing $2.4 billion year to date through Q3 FY20, reflecting a rise of 354% over the same period in FY19.

On 1 May, Afterpay welcomed Tencent Holdings, an internet value-added services provider to users, as a substantial shareholder with 5% voting power in APT.

On 3 July APT was trading at $66.7, down by 2.142% (at AEST 3:07 PM).

Sezzle Inc. (ASX:SZL)

Shares of Sezzle Inc. have soared more than 1000% in the past 3 months, from $0.37 on 23 March to $4.16 on 2 July.

Sezzle Inc, the US-based alternative payment provider, is well placed in the e-commerce space, with a healthy capital position and strong balance sheet. The underlying merchant sales (UMS) for SEZ surged 321% to a record US$ 119.4 million in Q120 ended 31 March. Some other highlights include:

  • Active customers increased 326% year on year
  • Active merchant growth leapt 27% quarter on quarter (QOQ)
  • Merchant fees climbed to 5.7% of UMS in Q120
  • Repeat usage increased by 190 bps to 85.6% QOQ

Source: ASX

Source: ASX

In April 2020, Sezzle added 114.4k active customers and over 1100 active merchants.

On 3 July SZL was trading at $4.03, down by 3.125% (at AEST 3:19 PM).

Zip Co Limited (ASX:Z1P)

The BNPL player ZIP Co Limited performed strongly in May 2020 as it reported strong transaction volumes and outstanding repayment performance amid COVID-19 shutdowns.

Some of the highlights as per the trading update dated 12 June for the month ending 31 May 2020 are:

  • Monthly revenue for Z1P rose 78% YOY to $15.6 million while monthly transaction volume increased 63% to $189.3 million YOY.
  • 63% growth in customers to 2.1 million in May 2020 compared to April 2020 while number of merchants surged 46% to 23.6k.
  • Acquisition of QuadPay, US BNPL player, in June would fast-track its global expansion plans.
  • Reached an arrangement to raise up to $200 million from US-based Susquehanna International Group (SIG) to further drive growth.
  • Net bad debts were in line with management expectations at 2.16%, while customer repayment success rates were higher or on par with pre-COVID-19 level.

Source: ASX

Source: ASX

As on 2 July, Z1P shares rose by 286% in the past three months and was trading at $5.7, down by 1.724% (at AEST 3:38 PM).

OpenPay Group Ltd (ASX:OPY)

‘Buy now, pay smarter’ company, Openpay Group Ltd continued with robust growth for Q3 FY20 closed 31 March. Some of the highlights are as following:

  • Active plans rose 203%, active customers increased by 113%, and active merchants grew 63% relative to pcp.
  • Revenue increased by 71% to $5.3 million while total transaction volume grew 80%, reaching $45.8 million for the quarter.
  • Agreement with Pentana Solutions, which would witness OPY’s BNPS solution implemented across up to 1,900 car dealers and revenues from the same is expected from H1 FY21.
  • Openpay currently has close to 9 quarters of funding available, comprising cash on hand of $45.6 million and undrawn Australian debt facilities of $45 million. 

The Group has a strong balance sheet and growth funding position implying no need for raising capital. Openpay has refreshed its brand to stand out amongst the competition and build a uniquely identifiable brand with initial program roll out in the UK, Australia, and New Zealand to follow.

As on 2 July, OPY shares have risen by 631% in the past three months and was trading at $2.26 per share, declining by 3.419% (at AEST 3:47 PM).

Hence, all these BNPL firms have extreme valuations, with huge market cap that is increasing, as people are paying the premium value for these businesses, but the entities are not making any profits.

 


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