How have ASX BNPL shares performed during the August 2021 earnings season?

FY21 has been a year of ups and downs for ASX BNPL shares as the industry rapidly expands, both in Australia and across the world.
The post How have ASX BNPL shares performed during the August 2021 earnings season? appeared first on The Motley Fool Australia. –

The buy now, pay later (BNPL) industry has grown rapidly in recent years.

Fueled by a shift to online shopping, ASX BNPL shares have seen significant increases in customer numbers and spending levels, which have flowed through to share prices.

Australia’s major player Afterpay Ltd (ASX: APT) has seen its share price rise from below $10 in 2018 to more than $130 currently. meanwhile, shares in its closest ASX competitor, Zip Co Ltd (ASX: Z1P), have lifted from less than a dollar in 2018 to closer to $7 today. 

A quick take on buy now, pay later

BNPL refers to a range of point of sale financing options that allow customers to pay for purchases via instalments. The BNPL provider pays the merchant for the goods, and the merchant pays the BNPL provider a fee for facilitating the transaction.

The customer is then required to pay the BNPL provider the cost of the goods in instalments. BNPL providers generally do not charge customers interest, but they may be charged fees for late or missed payments.

The COVID-19 pandemic has provided tailwinds to the sector as consumers moved online. A recent report in Business Wire said the adoption of BNPL was expected to grow steadily in Australia during 2021-2028, at a compound annual growth rate of 13.1%. 

The Australian industry is now starting to mature, with BNPL players turning to global expansion to further grow their businesses.

Afterpay operates in North America, the United Kingdom, Australia, and New Zealand, and launched into Canada, Spain, France and Italy in FY21. Zip operates in 12 markets across 5 continents, including the United States, UK, Canada, and Mexico.

Newer competitor Sezzle Inc (ASX: SZL) listed on the ASX in 2019 and is focused on the North American market from its base in the US.

Splitit Ltd (ASX: SPT), which also listed in 2019, is headquartered in New York and is accepted by e-commerce merchants in 30 countries. 

How have ASX BNPL shares performed against the market?

ASX BNPL shares bounced back strongly from the March COVID-19 downturn to produce some impressive returns in 2020. Since peaking around February 2021, however, BNPL share prices have retreated somewhat.

The Zip share price is currently down 51% from its February peak of $13.92, with the Sezzle share price down 44% from a high of $11.72.

The Splitit share price is currently trading 72% below its February high of $1.51 while the Afterpay share price has retreated 17.5% from its own February high of $158.47.

By comparison, the All Ordinaries Index (ASX: XAO) is up 12.7% since February while the S&P/ASX 200 Index (ASX: XJO) is up by the same amount.

Who are the winners this earnings season? 

Afterpay was a strong performer this earnings season, reporting a 90% increase in underlying sales for FY21. The BNPL behemoth transacted $21.1 billion in sales for the financial year. Based on Q4 FY21 trading, this is a run rate of more than $24 billion per annum. This exceeds Afterpay’s objective of reaching $20 billion in underlying sales 12 months ahead of target.

Zip, which reported its results on the same day as Afterpay, saw transaction volumes increase 176% year on year to reach $5.8 billion. Zip reported that growth was continuing to accelerate in FY22, with year to date transaction volumes up 58% in Australia and 240% in the United States. 

Afterpay reported a 63% increase in customers over FY21, with 16.2 million active customers at the end of the financial year. Approximately 25,000 new customers joined Afterpay per day during FY21. Zip reported a 248% year on year increase in customer numbers, with 7.3 million customers at the close of FY21.

Both Afterpay and Zip also reported significant increases in the number of merchants offering their payment solutions. Zip grew merchant numbers by 109% to 51.3k, while Afterpay increased merchant numbers by 77% to 98.2k. 

And the losers in FY21? 

Not all ASX BNPL shares reported their full-year results in the August earnings season. Smaller players Sezzle and Splitit released interim results last month, providing insight into their growth progress.

According to Sezzle’s 2Q FY21 results, $1.4 billion in sales were made through its platform over the preceding 12 months. Sales for the quarter were $411.1 million, up from $375.1 million in the preceding quarter.

Splitit’s half-year report revealed sales of US$172.5 million for the half, which correlates to annualised sales of US$361 million. 

Sezzle reported 3 million active customers at the end of June, with its top 10% of customers transacting 49 times a year. Splitit added 134,000 new customers during the half, bringing total customers to 566,000. Sezzle counted 41,800 merchants at the end of June, while Splitit reported merchant numbers of 2800.  

Looking ahead?

As the BNPL sector matures, companies are looking offshore for growth opportunities. Sezzle is making headway with larger enterprise merchant partners as it seeks to scale its offering, with Target and GameStop onboarded.  Geographic expansion is also on the cards for the company — Sezzle’s primary market is the US, but it has also launched in Canada, India, and Brazil.

Splitit has also signed up multiple new large merchants, including Google Japan. This marks an important step in Splitit’s expansion into Asia. Zip is also focused on expanding its global footprint, launching in the UK and entering markets in Europe and the Middle East. 

Recent merger and acquisition (M&A) activity has highlighted opportunities in the sector, which may accelerate strategic focus and commercial integration.

Afterpay is set to be taken over by fintech Square Inc (NYSE: SQ) in a $39 billion deal announced last month. The Afterpay share price surged on the news, which will see shareholders receive 0.375 shares of Square Class A common stock for each Afterpay ordinary share they hold.

Square will establish a secondary listing on the ASX following the acquisition, which will allow Afterpay shareholders to trade Square using CHESS Depository Interests. 

While earnings are increasing as BNPL shares scale their offerings, none are yet profitable or paying dividends.

Zip raised $676 million in capital in FY21 but recorded a cash earnings before interest, tax, depreciation and amortisation (EBITDA) loss of $22.9 million.

Afterpay completed a $774.4 million capital raise in early FY21, but reported a statutory loss after tax of $159.4 million. Sezzle reported a loss of approximately $30 million for the half-year, while Splitit reported a loss of US$18.77 million. Longer term, investors will likely expect ASX BNPL shares to shift to profitability. 

The post How have ASX BNPL shares performed during the August 2021 earnings season? appeared first on The Motley Fool Australia.

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