Afterpay, Zip Co fall sharply amid BNPL sell-off

The red-hot BNPL sector is getting a dose of cold water to end the week amid a broader tech sell-off.

Zip Co (ASX:Z1P) and Afterpay (ASX:APT) both slumped by as much as 10 per cent at the opening bell.

But it wasn’t just an Afterpay/Zip Co problem, with Sezzle (ASX:SZL) also down 10 per cent at one point while every stock in the ASX’s BNPL cohort was trading in the red.

As part of Afterpay’s half-year results yesterday, the company announced a $1.25bn convertible note issue which UBS analysts described as the “key news” in the announcement.

The company had a follow-up this morning, announcing it had upped the raise to a $1.5bn offer which it said was “strongly supported by eligible investors globally”.

The deal will give investors the option to acquire APT stock at $194.82 per share. After this morning’s slump, the stock is trading at ~$120.

The conversion price implies that APT’s debt investors are backing the stock to climb well above the $194.82 level, at which point they will convert their debt notes for a profitable gain.

UBS, which maintains the view that APT is significantly overvalued, followed up its snapshot review of APT’s results yesterday with some more detailed analysis, which included a re-rating.

From it’s previous 12-month price target of $30, the bank now thinks Afterpay is worth…$36.

Zip Co is on track for its fourth straight day of falls, after a half-year trading update of its own yesterday which showed losses were accelerating.
 

Afterpay, Zip Co and tech in general

The BNPL sell-off accompanied a round of jitters in the broader market, following another sharp move higher in bond yields overnight.

Bond markets are starting to rumble — a sign that investors are lending weight to the idea that record levels of post-COVID fiscal and monetary stimulus may actually generate inflation.

Upward pressure on interest rates is typically viewed as a negative for high-growth tech stocks, and this morning’s declines followed a 3.5 per cent slump on the tech-focused US NASDAQ index overnight.