Buy now pay later results season round up

BNPL stocks plunge as interest rate fears spook investors.

Interest rate fears shake out the market

Risk assets were battered overnight, with US stocks falling sharply as fears of rising interest rates persists. The tech complex faced particularly pronounced selling pressure – with the Nasdaq 100 plunging 3.56%, finishing out the session at the 12,828.31 point level.

By comparison, the Dow Jones Industrial Average was down 1.75%; while the S&P 500 index dipped 2.45%.

Australia stocks played follow the leader when markets opened on Friday, with the ASX 200 benchmark dropping 2.54% by 11:30 AM. By 2:46PM those losses had been pared back somewhat, but the benchmark remained down 1.90%.

The Buy Now Pay Later (BNPL) complex was hit particularly hard as a result of this risk-off atmosphere, with Afterpay, Sezzle and Zip suffering heavy losses in the first hour of trade and beyond.

Heady growth was never going to insulate the sector against adverse market moves. And to be sure, Afterpay et al, as part of their interim and full-year results releasees posted stellar growth (and losses) across the board.

By 2:14 PM, Afterpay led the declines, with the stock down 13%, Sezzle was close behind, down 11%, while Zip was the best performer (on a relative basis) down just 6.8%. Even after that sell-down, valuations remain frothy by historical standards. With no earnings to speak of, APT trades on a 44x sales multiple, Zip 18x, and Sezzle 22x – according to Bloomberg.

Despite Friday’s bearish market action, below we look at the highlights from Afterpay, Sezzle and Zip’s latest earnings reports. Where applicable we also look at what some key sell-side analysts have said of these results.

Afterpay share price: 5 days -22% (interim results)

Overall, Afterpay posted strong top-line growth, in terms of both revenue and transaction volumes, however losses widened and the company said it was looking to raise $1.25 billion through a convertible bond issue.

On the top-line, the company reported underlying sales of $9.8 billion, implying a year-over-year growth rate of 106%. In step with this, Afterpay’s total revenue surged 89%, coming in at $417.2 million.

This comes as the company continues to build out a solid ecosystem, with the company reporting 13.1 million active customers and 74.7 thousand active merchants.

On the bottom-line, the company reported earnings (EBITDA) of $47.9 million (+521%) and an after tax loss of $79.2 million (+151%).

Looking ahead, analysts from Citi, who remain Neutral on APT, said:

‘The key question post the result will be the level of opex investment (both employee and marketing) required going forward given the international expansion but, more importantly, increasing competition in the sector.’

By comparison, Morgan Stanley who recently slapped a $170 price target on the stock, walked back their bullish position somewhat, lowering their price target to $159 as a result of weaker revenue expectations across FY22. Dilution from APT’s convertible notes issue was also flagged as a key negative.

We discuss Afterpay’s interim results in more depth here.

Sezzle share price: 5 days -19% (full-year results)

There was a sameness to Sezzle’s results as with others in the BNPL space: Mammoth growth and widening losses.

On the top-line, the company reported underlying merchant sales of $1,082.2 million, implying a staggering 250.8% increase on a year-over-year basis. Total income (revenue) grew at an even faster rate, up 272% to $74.3 million.

And just like Afterpay and Zip, customers continue to flock to the service. Active customers hit 2.2 million while active merchants reached 26.7 thousand.

This fervent growth has come at a cost however, Sezzle remains loss making – reporting a loss after tax of USD$31.9 million, up 144% on a year-over-year basis. Earnings (EBITDA) also came in at negative USD$27.1 million.

This was driven primarily by increased marketing spend, personnel costs, as well as R&D expenses, the company said.

Commenting on Sezzle's results, analysts from RBC argued that:

'With higher repeat usage, which is well evident in the cohort frequency improvements, we expect higher UMS trajectory and further improving gross loss rates and we continue to remain positive in 2021 considering the January run-rate that is tracking ahead of our estimates for 1Q21.’

RBC has a $9.99 price target and Outperform rating on Sezzle.

Zip share price: 5 days -19% (interim results)

It was a busy half for Zip – the company finalised its acquisition of the US-based Quadpay, reported record transaction values and recorded positive cash earnings (EBITDA).

On the top-line, the company recorded record transaction volumes of $2.32 billion, representing a year-on-year increase of 141% and implying annualised transaction volumes of $7.5 billion. This translated to revenue growth of 130% year-on-year, with Zip reporting record revenues of $160.0 million.

Elsewhere, active customers more than tripled in the half hitting 5.7 million while the company has now onboarded 38.5 thousand merchants

Though the company witnessed strong revenue and customer growth, losses spiralled in the half, rising 1,395% to $453 million. These losses were attributed to adjustments made as a result of the QuadPay acquisition as well as associated acquisition costs. When excluding these factors, Zip said its adjusted loss before tax came in at $139.8 million.

Citi analysts, who remain Neutral on the stock, said that Zip’s interim results were stronger than expected, though mused that:

'The key question will be the level of investment required going forward to support the international business given a number of competitors have raised additional capital.’

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