New Era for BNPL Providers: Will Splitit set the trend post Afterpay?

Summary

• BNPL firms provide options to customers to pay later through an interest-free, transparent, and smooth checkout system.
• Splitit has reported strong growth in Q2 ended 30 June, with record merchant sales volume of USD 65.4 million, up 260% on pcp.
• Afterpay shares have given a return of more than 670% (from $8.9 on 23 March -$68.82 on 30 July). Also, APT intends to raise $1 billion fresh capital to fast-track its worldwide expansion plan.

BNPL firms have benefitted massively through a shift towards online shopping amid coronavirus crisis that has restructured the fulfilment of financial urgencies for people, and businesses.

Further, retailers who are in desperate need to sell their merchandise have also become more receptive to partnerships with BNPL firms, which allows an easy access to credit, unlike credit cards or mortgages.

BNPL has risen as a significant force in retail (both physical and online), as new players and market models have emerged to refresh the old concept.

Let’s have a look at 2 BNPL stocks that have been in the news.

Splitit Payments Ltd

Splitit Payments Ltd (ASX:SPT) share price has been rising up, after it published its Q2 results on 30 July. The shares have soared by more than 550% from $0.215 on 23 March to $1.4 on 30 July.

Splitit provides a credit card-based instalment solution to businesses and merchants.

Key financials

Splitit released its quarterly update on its activities and cash flows for a 3-month period to 30 June 2020.

Let’s have a look at its key performance metrics.

• Record merchant sales volume (MSV) growth of 260% YoY to USD 65.4 million in Q2FY20.
• Strong growth in its largest markets with North America, up 261% YoY and Europe, up 240% YoY.
• Total Q2 FY20 gross revenue (Non-GAAP) was up 460% YoY at USD 2.4 million, outstripping total revenue compared to the entire FY19, primarily due to rising demand for its funded model under which merchants get a full purchase price upfront.
• Robust growth in customer numbers with total merchants rising 104% YoY, exceeding 1k and total shoppers of above 300k total shoppers, up 85% YoY.
• Repeat usage fell to 10.2% due to large upsurge in new shoppers in the quarter and rising acceptance locations.

During the quarter, Splitit continued to draw new and large merchants, indicating success in its strategy to develop its presence in key verticals such as luxury retail, jewellery, homewares, sporting and outdoor. With new leading brands embracing Splitit in Q3 to date, including Puffy, Waves, OCM, Ecosa and Braun, retailer desire and sustained execution against SPT’s strategy is exhibited.

Splitit also announced a partnership with Mastercard, integrated with B2B and B2C payment platform BlueSnap, and completed the first phase of its integration, with Stripe Connect that aims to hasten and scale new merchant acquisitions.

SPT also made key leadership appointments to further bolster its team, appointing Ben Malone as Chief Financial Officer (CFO) and Kay Brinkley as VP Payments & Risk during the quarter.

ALSO READ: BNPL strong run on ASX & changing stance on stimulus: Are stocks done with the run-up?

The Group remains well funded with USD 18.3 million net cash and USD 32 million of unused borrowing capacity to fund further growth.

Brad Paterson, CEO of Splitit, stated that enhanced demand from merchants, solid foundations, and a great shopper experience have set Splitit on a rapid growth path. Benefits of tightening product-market fit, partnering with Stripe, Mastercard and Visa, hiring high calibre executives, as well as assisting scalable solution with the right merchant funding model are evident.

Outlook

Consumer awareness and preference for Splitit are growing, while merchants are witnessing an improvement in their shopping cart conversion rates fuelling merchant demand. The Company remains positive about its growth ahead, given the shift to e-commerce and its differentiated model, and would continue to focus on large merchant acquisition in its target verticals to strengthen further MSV and revenue growth.

SPT last traded at $1.41, up by 2.92% from its last close.

Afterpay Limited

Afterpay Limited (ASX:APT) share prices have jumped 673.25%, from a low point of $8.9 on 23 March to $68.82 on 30 July. APT’s shares had hit a record high price of $75.05 on 21 July.

On 7 July, Afterpay reported record sales in Q4 FY2020 ended 30 June, with underlying sales surging 127% to stand at $3.8 billion.

Here’s a look at other key financials of the firm.

• Underlying sales doubled to $11.1 billion in FY20, up 112% on the prior financial year and stood at $3.8 billion in Q4FY20.
• Q4 FY20 sales stood at $3.8 billion, up 127% on pcp, reflecting highest quarterly performance ever.
• Key active customers reached 5.6 million in the US, and 1 million in the UK, with total active customers of 9.9 million for FY20 surpassing its target of 9.5 million.
• Net Transaction Loss and Net Transaction Margin for FY20 is likely to be up to 55 basis points and ~2%, respectively.
• EBITDA excluding significant items for FY20 is expected to be between $20-25 million, and expansion into Canada and unveiling of in-store in the US is expected in Q1 FY21.

FY21 is anticipated to be a year of enhanced investment for the payments platform as it supports the strong impetus in the business and makes capital out of the opportunity to mount worldwide.

On 8 July, Afterpay notified that it successfully raised $650 million via fully underwritten institutional placement, which was priced at $66 per share. The firm also announced to raise $150 million through a Share Purchase Plan (SPP), while giving an opportunity to eligible Afterpay stakeholders to obtain additional new shares.

APT’s co-founders Anthony Eisen and Nicholas Molnar announced in early July that they were selling $250 million in shares, as part of the process in a bid to raise $1 billion in fresh capital to accelerate its plan of world-wide expansion.