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ASX BNPL Wrap: Higher rates could rattle BNPL stocks, but last quarter results were still strong
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- Latest quarterly earnings showed BNPL stocks are still enjoying solid growth
- However obstacles are lying in wait, including a potential rate hike
- A quick glance on how ASX-listed BNPL stocks have performed over the past month
Quarterly results released over the past week have shown that BNPL companies are still enjoying rapid growth, despite several headwinds that could potentially hamper growth over the longer term.
Sector leader Block Inc (ASX:SQ2) is yet to report earnings, but smaller players have provided a glimpse of what investors could expect later this week.
Looking through recent quarterlies, you’d be hard pressed to find a BNPL stock where key metrics (like merchant sales, gross merchandise value, or revenue) have not grown substantially.
This is despite the many obstacles the sector is facing, including an RBA rate hike that could come as early as today.
A rise in rates will not only lessen the consumer’s ability to spend, it could also upend the sector’s core business model, which has so far relied heavily on cheap funding.
Another problem is that consumer confidence in Australia has been slipping. The Westpac-Melbourne Institute Index of Consumer Sentiment fell by 0.9% month-over-month in April, and is now down for the fifth month running.
Countering that is the fact that online sales in Australia were at a record $62.3 billion last year. According to the ABS, our retail spending has also increased by 1.8% month on month in 2022, and has grown by 9.1% from the prior year.
It’s hard to predict what’s going to happen to retail spend, but what’s certain is that the BNPL sector will likely see more M&A activities in 2022, as smaller players merge with more established ones to survive rising rates and stave off competition.
Experts argue that the BNPL boom in Australia is already at a tipping point, and higher rates could now tip those smaller players into survival mode.
BNPL winners and losers in April
| Code | Name | Price | % 1-Month Change | Market Cap |
|---|---|---|---|---|
| SPT | Splitit | 0.26 | 68% | $122,286,636.68 |
| PYR | Payright Limited | 0.17 | 42% | $11,879,750.28 |
| NOV | Novatti Group Ltd | 0.235 | 9% | $78,794,917.44 |
| LFS | Latitude Group | 1.85 | 0% | $1,921,153,845.30 |
| HUM | Humm Group Limited | 0.825 | -1% | $408,596,362.35 |
| FFG | Fatfish Group | 0.037 | -5% | $38,336,805.45 |
| OPY | Openpay Group | 0.34 | -6% | $44,662,039.94 |
| ZBT | Zebit Inc. | 0.043 | -7% | $4,069,314.16 |
| LBY | Laybuy Group Holding | 0.075 | -9% | $19,111,440.08 |
| CI1 | Credit Intelligence | 0.008 | -11% | $12,821,788.14 |
| SQ2 | Block | 145.2 | -21% | $6,515,417,013.60 |
| DOU | Douugh Limited | 0.025 | -25% | $15,466,211.25 |
| IOU | Ioupay Limited | 0.125 | -29% | $68,926,508.13 |
| ZIP | ZIP Co Ltd.. | 1.095 | -29% | $750,362,727.68 |
| SZL | Sezzle Inc. | 0.88 | -37% | $176,581,505.76 |
Splitit has refreshed its growth strategy, and says it wants to become the infrastructure layer of BNPL.
During the quarter, Merchant Sales Volume (MSV) was US$101 million, up 23% Year on Year (YoY), after a standout quarter.
SPT’s 12-month Active Merchants increased 43% YoY to 1.3k, and the company finished the quarter with US$25m in available cash after securing a US$150M Goldman Sachs credit facility.
Under new CEO Nandan Sheth, Splitit wants to leverage its unique technology and focus on distribution partners by offering white-label, Instalments as a Service solution for partners and enterprise merchants.
“Having spent my initial weeks as CEO getting to know the team, our product and capabilities, it has reinforced my conviction about why I joined Splitit, and I have also had the opportunity to formulate a new vision for the company in what is a rapidly evolving sector,” said Sheth.
Payright’s gross receivables grew to $97.2 million in the quarter, up 59% on pcp.
Its fee income was $3.9m, up 36% on pcp, while revenue yet to be recognised as of 31st March increased to $17.3m.
Meanwhile, Payright’s total customers were 71.3k, up 50% on pcp; while Total Merchants increased by 21% on pcp to 3,778 stores.
In April 2022, the company secured a transformational funding package consisting of a $125 million warehouse debt facility, and $9.5 million capital raising via placement and convertible notes.
With a strengthened balance sheet and reduced cost of funding, Payright says it’s well positioned to accelerate its growth strategy and fast track the path to profitability.
Commenting on the Q3 FY22 performance, Co-CEOs Myles Redward and Piers Redward said: “This was another strong quarter for Payright across our key metrics, as we continue to build scale in our large-ticket point-of-sale consumer finance offering. We are pleased with the growth in our loan book to now be just shy of $100 million.”
For the quarter, Sezzle’s Underlying Merchant Sales (UMS) for Q1 of FY22 rose 20.1% YoY to US$450.5m (or around $601.5m).
Total Income grew 6.2% YoY to US$27.6m, while its active consumers grew by 31.6% YoY and reached 3.5 million at quarter end.
Sezzle says the top 10% of its users (as measured by UMS) remained highly engaged, transacting 47x on average over the trailing 12-month period ended 31 March.
Also, over 4.1 million consumers have downloaded the Sezzle app as of 31 March.
IOU reported a strong Q3, with increased volumes of myIOU BNPL transactions completed in the March Quarter.
Around $11m in Total Transaction Value (TTV) has been transacted, delivering around $560k in Net Transaction Revenues (NTR).
The company also saw continued growth in consumer and merchant signups since the mid-June launch, onboarding over 3,400 merchants and 20,300 customers.
In its outlook commentary, IOU expects momentum to continue in the near future as it strictly pursues quality merchants and credit-worthy consumers.
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