Revenue expands while losses mount for BNPL players – APT, Z1P

In this article, we will discuss two BNPL companies – Afterpay and Zip Co, that disclosed their respective half-year results FY20 (period ended 31 December 2019) today (26 February 2020).

Afterpay Limited (ASX:APT)

Afterpay Limited is a Victoria, Australia-based payments company operating in multiple geographies including Australia, the US, the UK, and New Zealand.

Even though Afterpay’s first-half FY20 results (period ended 31 December 2019) demonstrate robust growth numbers, the losses of the company ballooned 31% to reach $28.9 million compared to $22 million in the previous corresponding period (pcp).

The company recorded a total income of $220.3 million, up 96% from $112.3 million in the pcp. APT’s UK, US and Australian businesses drove the results as well as a first full half-year contribution from Afterpay UK.

Source: APT HY Presentation

APT highlighted that the business growth was recorded due to an increase in the value of sales processed via the APT platform, which in turn was aided by merchant and customer adoption of the company’s products and services.

According to the company, its EBITDA at -$14.13 million was dampened by significant items, which included international expansion cost of $3 million, business combination expenses of $386,000 and AUSTRAC-related costs of $3.02 million. APT noted that EBITDA was $6.75 million, excluding significant items and non-cash expenses.

The company’s underlying sales for the period were $4.8 billion compared to $2.3 billion, up 109% on the pcp. APT’s active customer base was recorded at 7.3 million customers against 3.1 million, up 134% on the pcp.

Also, its active merchant base grew to 43.2k from 23.2k, up by 86% on the pcp. In the UK and US, APT believes that the addressable online opportunity through its contracted and presently onboarded merchants is around $30 billion, implying the same level of total addressable retail online prospect in Australia.

The results also indicated that the in-store offering in the ANZ region continued to grow, and presently constitutes around 24% of the underlying sales generated from the region. During the period, the company averaged 16.8k customers/day.

Afterpay said that significant investments had been undertaken to pursue global ambitions, which is reflected in the growing pipeline of merchants and customers as well as new merchants that would contribute to underlying sales.

The company expects to continue making investments in the second half of the year to underpin the launch of in-store footprint in the US, and its next target market – Canada. It has a target to reach 9.5 million active customers by the end of FY20.

On regulations, the company said that it backs the notion of an Australian industry code, and welcomed the Draft BNPL code of practice. APT has made a submission to the Senate Committee inquiry into FinTech and RegTech, and the CEO of the company would be appearing before the committee this month.

Also, the company is working on implementing the recommendations made in the report by the independent auditor. APT has incurred a provision of $1.5 million related to the estimated settlement cost of the regulatory matter.

On 27 February 2020, APT shares last traded at $36.470, up by 1.39% from the previous close.

Zip Co Limited (ASX:Z1P)

Zip Co Limited is engaged in the provision of digital payment services and retail finance solutions across various industries, including health, travel, and education, among others.

Zip Co has reported first-half FY20 results (period ended 31 December 2019) in which the company recorded revenue growth of 103 per cent compared to the pcp, reaching $69.6 million as against $34.23 million. Zip incurred a loss after tax of $30.34 million compared to $6.75 million in the pcp.

Since December 2018, the company has seen its customer accounts grow by 80% to over 8300 merchants aligning with the business, representing an increase of 66%.

The company’s transactional volumes were up 95%, and receivables were up 112%, compared to the pcp. During the period, Zip acquired NZ BNPL technology provider, PartPay Limited and a global SME lender Spotcap’s business in ANZ.

Source: Z1P HY Presentation

Consistently with its strategy, the company invested for growth, thereby increasing its marketing spend. The marketing initiatives included promotional campaigns to drive transactional volumes and rebranding the newly acquired businesses.

Zip’s headcount increased to 354, which saw onboarding of new executives in marketing, commercial, product, people and culture that would help to scale the business globally. Also, the company continues to invest in the development of software, application, architecture to improve the customer as well as merchant experience.

The company had penned strategic agreements with Amazon Australia, Kmart Australia, Just Group, Big W, Bing Lee, Freedom, Ola and Optus.

During the half-year, the active customer accounts increased to over 1.8 million, an 80% increase compared to the pcp. Its transaction volumes grew to $964.7 million, showing an increase 95% over the pcp. Likewise, its receivables increased to $1.03 billion.

As a result of increased uptake by the merchants, the company expanded its footprint to 50k points where the Zip payment are acceptable. In NZ, the business had over 165k customers transacting with around 1100 merchants and post the acquisition the company has been successfully referring to several Australian businesses to the NZ platform.

In the UK, the operations remain at an early stage, and the business is presently being localised. The process of hiring key executives is ongoing for the launch of services in the second half of the financial year.

Spotcap, which was also acquired in the half-year period, has over 1400 customers across ANZ, and it processed over 400 new loans during the period from over 3k distribution partners.

The revenue growth was driven by uptake in customers and better engagement, resulting in higher transaction values and receivables. Z1P’s cost of sales was $46.6 million, up from $21.8 million in the pcp. Its reported gross profit was 33% of the portfolio income, which was 35% in the pcp.

Concerning the regulatory environment, the company noted that it is taking a leadership position and keenly engaging with regulators and other stakeholders. These consultations include BNPL code of practice, ASIC’s review of BNPL industry, RBA’s review of payment systems, Senate Committee on FinTech and RegTech, as well as consumer data right and open banking.

Besides, the company had an annualised transaction volume target of $2.2 billion by the EOFY, and it is annualising at $2.3 billion, at present. The company has a target of 2.5 million active customers (global) by the end of EOFY 2020.

On 27 February 2020, Z1P shares last traded at $3.03, down by 7.903% from the previous close.

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