When you look at two companies from the Fintech space, you consider them as a competitor to each other. So, is the case with Afterpay and Zip. However, it is pertinent to note that, like many other cases, the devil is in the details.
The two companies operate in similar international geographies, however, from where we see -- Afterpay and Zip – both compete in entirely different markets.
Can you tell us more about these companies?
Afterpay Limited (ASX:APT), founded in 2014, is an information technology company offering a retail payment platform to help connect customers to retailers for better transactions. The group had, in 2018, announced its launch in the US market with Urban Outfitters.
ZIP Co Limited (ASX:Z1P) – a payment solution provider – was founded in 2013, a year before Afterpay was found. The company offers point-of-sale (PoS) and digital payment services to merchants and consumers across four different industries – health, retail, education, and travel. The company offers a range of Retail Finance solutions to businesses, both online and offline, has two main products – zipPay and zipMoney.
The major difference, that will play out between the two companies going forth, could be the fact that Afterpay has predominantly buy-now-pay-later model, while Zip doesn’t.
Which company is bigger in size?
Zip might be the elder brother in the game, but surprisingly, Afterpay is multiple times bigger than it when it comes to numbers. Here are some quick comparisons:
- Afterpay has almost 10 million active users – five times more than two million of Zip.
- Afterpay boasts of more than 55,000 merchant partners – over two times the size of Zip’s 25,000.
- Earnings before interest, taxes, depreciation and amortisation (EBITDA) of Afterpay stands at AU$44.4 million, which is 13 times the EBITDA for Zip, which stands at AU$3.5 million.
Are these numbers reflected in the share prices of the two firms?
Yes, of course they are. Afterpay is priced at AU$118 per share, with a market cap of AU$33.93 billion. The market cap is 7.36 times more than that of Zip, which has a share price of AU$8, with a market cap of AU$4.61 billion. . However, it is only this year that Zip has caught up in the game. On a YTD basis ZIP has appreciated 45% while APT has remained flat.
Also, experts believe that Afterpay is probably more capital-efficient than Zip as it can turn over its loan book faster. This is because of the typical six-week period over which Afterpay extends interest-free loans. This means the same capital can be lent and paid back around eight to nine times over a 52-week year – at least in theory.
That said, on the face of it, Afterpay does have an edge given its size and user-base. However, caution is called for.. Since it predominantly operates in the BNPL mode, as a prudent measure, one should ask them for books of the bank, and try to ascertain what is the credit quality of the borrowers they have lent out to.