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Why the Afterpay, Zip and Sezzle share prices continue to plummet

As Australia's 'blue-chip' buy now pay later companies see their share prices crash, we revisit some of the key research on the sector from the investment bank UBS.

Zip, Afterpay and Sezzle share prices in focus Source: Bloomberg

Buy now, crash now

What a month it has been for the buy now pay later (BNPL) superstars Afterpay, Zip and Sezzle.

For those who invested ~30 days ago, they are likely counting handsome loses: the Afterpay share price has collapsed approximately 68% in that period (dropping as much as 34% today alone), Sezzle has fallen 61% and Zip has seen its share price come off a staggering 66%.

Talk about risk assets!

Of course, the whole market is falling – not just growthy tech stocks and credit providers. And though the reason is simple: as concerns over the economic impact of the coronavirus crisis escalates to unprecedented levels – its impacts, wide ranging as they are – are anything but.

Ultimately, virtually no stocks, growthy, defensive, or otherwise have been spared from the carnage over the last month. For example, the ASX 200 benchmark is down about 31% in that period; and US indices, including the Dow Jones, S&P500 and NASDAQ have fallen by comparable amounts.

How to trade BNPL stocks

What do you think: have Australia’s premier buy now pay later stocks been well oversold or are there further declines on the horizon? Trade accordingly. For example, you can trade Afterpay shares – both LONG and SHORT – through IG’s world-class trading platform now.

To buy (long) or sell (short) Afterpay with CFDs, follow these simple steps:

  • Create an IG Trading Account or log in to your existing account
  • Enter ‘Afterpay’ or ‘APT' in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

Afterpay and Zip share prices: the UBS warning

On the Afterpay front, there are now some in the market savouring an ‘I told you so’ type moment. Indeed, many had long warned that by traditional metrics, the valuations of Afterpay and other BNPL providers made little sense.

Maybe most vindicated are analysts from UBS, who in October wrote a stinging report on Afterpay and Zip, rating both a Sell, against price targets of $17.25 and $4.80, respectively.

Here, UBS maintained that while investors were happy to price in excessive growth for these ‘blue-chip’ BNPL names (particularly in the case of APT); the increasing regulatory, competition and execution risks were essentially being ignored by investors.

Yet maybe most worryingly, the broker further noted that:

‘UBS Evidence Lab data indicates that BNPL users relative to non-users were more likely to be indebted, 64% of BNPL customers surveyed think it is credit, and 30% had used a credit card to pay down their balance.’

In spite of UBS’ bearish report, at the time some of the world’s most prestigious brokers were turning even more bullish on Afterpay’s prospects: Morgan Stanley at the time hit the stock with a price target of $44 per share, while Goldman Sachs pegged APT’s fair value at $42.90 per share.

Those UBS risk warnings may have proved somewhat effective though: from mid-October to early November the stock fell almost 30%.

Yet if they were 'effective', it proved to be a short-lived effect, and in typical APT fashion at that point, the Afterpay share price quickly rebounded: climbing ~50% from October 2019 to February 2020.

The bulls had secured their victory, so it seemed. Now however, they seem anything but victorious. With Afterpay down as much as 34.71% today alone – to a low of $12.44 per share – UBS’ ample risk warnings seem well vindicated.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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