Summary
- BNPL delivers a more intuitive level of convenience and access for consumers than traditional credit cards. Not only is it proving to be a COVID-19 savior, millennials & Gen Z are more used to making snap purchases and then decide later if they want to keep it.
- A Forbes report states that BNPL schemes like Klarna, Afterpay and Affirm are growing at a rate of 39 per cent annually in the UK and will double their market share by 2023
- While Sezzle recently reported one of the top 3 months of monthly Underlying Merchant Sales in its history, Afterpay has launched a Placement and looks forward to its expansion plans across potential new international markets.
After its presence and importance evident during the Great Financial Crisis of 2008, many are embracing buy now, pay later (BNPL) payment options in the wake of COVID-19, rather the likely Great Virus Crisis of 2020. Easily regarded as the contemporary version of layaway, BNPL is a payment method that represents flexibility as well as control by enabling consumers to first get products and services and submit payment later. An increasingly popular option, BNPL ensures that consumers are able to seek balance between managing budgets and immediately acquiring products essential for their daily lives, while easing financial burden.
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The BNPL phenomenon has changed the payments landscape in Australia. A JP Morgan report from last year states that with 52 per cent of transactions and $17.2 billion worth of sales, cards represent Australia’s primary way to pay online.
In this backdrop, let us look at latest updates of two renowned BNPL providers from Australia- Sezzle Inc. (ASX:SZL) and Afterpay Limited (ASX:APT) who have yet again gained massive market attention owing to a record Q220 result and trading update, capital raising along with expansion plan, respectively.
Sezzle’s Record 2Q20 Amid COVID-19
Installment payment platform, Sezzle’s results for quarter ended 30 June 2020 continued to reflect a trajectory of solid growth across all key operating metrics. So much so, 2Q20 represented the top 3 months of monthly Underlying Merchant Sales (UMS) in Sezzle’s history.
The Company’s performance has reaffirmed its product’s utility to consumers looking for a smarter way to budget their personal finances and the overall market shift to eCommerce, opines Executive Chairman and CEO Charlie Youakim. He further stated that the Company’s strong performance is reflective of an improving consumer profile combined with accelerated adoption of eCommerce owing to the pandemic.
Sezzle’s Outlook
North American consumers and retailers continue to turn to eCommerce for their needs amid COVID-19. With nearly 100 per cent of the Company’s transactions via eCommerce, Sezzle is well-positioned for this ongoing move to online.
The Company expects that by the end of 2020, it will have reached an annualised run rate for UMS exceeding $ 1.4 billion per annum. On 27 July 2020, it would release its Appendix 4C Quarterly filing.
Post release of this update, SZL soared by 24.57 per cent relative to its last close and quoted $ 5.07. In the last three months, it has delivered returns of 201.48 per cent.
Afterpay’s Trading Update
For the three-month period ended 30 June 2020 (Q420) and the financial year ended 30 June 2020 (FY20), Afterpay released a trading update on 7 July 2020, with the below highlights-
Afterpay’s Capital Raising
The compounding behavioural change owing to COVID-19 organically increases the attractiveness of the Company’s purposefully differentiated model. Already well-positioned with $11.1 billion worth of underlying sales achieved in FY20, Afterpay is raising additional capital to hasten its investment in growing underlying sales, prioritising global expansion in the short term while maximising shareholder value in the long term-
- Fully underwritten institutional Placement to raise $650 million.
- Pricing to be determined via an institutional bookbuild, underwritten floor price of $61.75 per new share.
- Final pricing and allocation decisions will be determined by an independent sub-committee of the Board in consultation with joint lead managers & financial adviser.
- No shareholder approval is required for the Placement.
CEO Anthony Eisen believes that raising capital will enable the Company to be in the strongest position possible to execute strategic initiatives and growth aspirations.
An SPP (not underwritten) is likely to follow the Placement with eligible Company shareholders in Australia and New Zealand bearing opportunity to acquire additional shares in the Company. The SPP aims to raise ~ $150 million.
APT was on trading halt on 7 July 2020 while the Placement was conducted and would resume trading on 8 July 2020 or when conclusion of Placement is announced to the market. The stock last traded at $ 68, up by 0.74 % on 6 July 2020.
Afterpay’s Expansion Plan
In April, expansion into a new vertical, eBay was launched. The Company opines that sustained growth in ANZ customer base continues to be driven by expansion into such new verticals.
As part of strategic planning process, opportunities to accelerate expansion into additional markets have been identified, raising possibility of launches into new markets in late 2020 or early 2021. Expansion into Canada and rollout of in-store in the US is expected in Q121. The additional capital being raised is likely to facilitate the same while the Company aims to expedite expansion into new markets, increase its relevance on a global scale and meeting needs of valuable global retailers.
Afterpay is exploring several small M&A opportunities to accelerate roll out across potential new international markets and due diligence is being undertaken.
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Note: (Currency figures are in Australian dollars unless otherwise stated)
