BNPL Fintech players are oblivious to the threats of interest rates, inflation and tougher times – instead doubling down on failed ‘growth’ strategies
BNPL apps are not profitable, facing rising competition from PayPal, Apple and major banks, the unregulated arbitrage is under risk of regulation and interest rates combined with inflation will only increases losses – not much good news!
The other big issue is credit risk – while these unregulated apps offer quick signup and easy use, they all avoid basic credit and risk management which shows up in massive bad debts.
Head of Retail at ANZ bank said this week –
“ANZ customers who use BNPL were twice as likely to default as those that do not”
Investors who once promoted these stocks now say –
“The fintech revolution has been substantially overplayed”, says Ritholtz Investments Josh Brown (see U Tube pce below)
VALUATIONS AND SHARES TANK
Global leader Klarna is still unprofitable and needs US$1 billion due to high cash burn, so has gone cap in hand to shareholders.
Europe’s highest valued private Fintech was ‘worth’ US$45.6 bn in June 2021, media said it was seeking a next round US$50–60 bn.
Now the new round will cost Klarna US$15 bn (plus 10% staff cuts), and a valuation around US$30 bn, which is stretching credibility given stock prices around the world are down 92%. Why would private VC markets think they are immune?
US Affirm – peak 2021 price of US$176, today $24 (recent low $13) with market cap $7bn – how Klarna thinks it’s worth $30 bn is a total mystery!
Affirm has revenues 70% of Klarna so a realistic valuation is US$10-12 bn. Clearly VCs and private shareholders don’t want to US$33.6 – $35.6 bn haircut in one go – this is risky as prices could fall further.
Australia had 12 BNPL stocks in 2021 – now 8 which gives a huge clue to the future outcome.
Australian BNPL sector was worth A$46,5 bn in March 2021, today its not even A$1bn (this excludes Afterpay sold to Square/Block for massively overpriced US$29 bn, today implied value US$3.8 bn.)
Australian BNPL shares June 2nd verses peak 2021 prices –
Splitit – down 85% (peak Aug 2020)
Payright – down 86%
Fatfish – down 93%
Douugh – down 94
ZIP – down 94%
OpenPay – down 95% (peak Aug 2020)
Laybuy – down 96% (since 2020 IPO)
IOUpay – down 98% (peak Dec 2002)
Leading BNPL player ZIP a year ago $7.7 billion market cap today $554 million – that’s a cool $7.1 billion lost in 12 months – given Zip shares are 81 cents today vs $14.53 a year ago – not much further to fall really.
If you invested $1000 in ZIP at peak – 68 shares less brokerage – today worth $55 or 94.4% lost.
A sample of recent global BNPL news coverage below – featuring Sydney Morning Herald/The Age, Wall Street Journal, Financial Times and Australia Financial Review – net result, the games up for these Fintech apps.
Source:Grant Halverson | LinkedIn.com