BNPL leader Afterpay (ASX:APT) is the talk of markets this morning after releasing its highly anticipated full-year results.

The Afterpay results show the company is still spinning topline revenue growth, flagging FY21 sales of $21bn — up 90% from the prior year.

The company said it now has almost 100,000 active merchants on its platform, with more than 16m active customers.

Most eyes then turned to the underlying loss figure which rose to $156.3 million, more than 600% higher than last year’s $19.8m loss.

Afterpay results — the one-off costs and loss

The company attributed the statutory net loss figure to one-off transaction costs, including share-based payments for employees.

The largest one-off expense amount was $96.8 million, which Afterpay accounted for as a net loss on financial liabilities at fair value.

The amount was described as a Put option held by UK-listed company ThinkSmart, which sold 90% of UK BNPL player Clearpay to APT in 2019.

The Put option is the right ThinkSmart holds to sell the remaining 10% of Clearpay it still owns, at a much higher valuation given the rapid appreciation of APT shares.

Share-based payment expenses also rose to $59m on the year, up from around $30m the year before.

Afterpay attributed that lift to the fact it hired more than 600 new employees during the year, as well as the “material increase” in the group’s share price and the “investment in eligible employees who were issued share based equity in line with the Group’s remuneration framework”.

Devil in the details?

While it’s never been profitable, Afterpay has become the poster child for ASX-listed high-growth tech stocks where investors have focused on top-line scale.

However, other investors aren’t convinced that the underlying transaction methods are conducive the idea that BNPL players can convert rapid scale into viable long-term growth and profits.

In a recent how-to on reporting season, pro investors told Stockhead it’s a good idea to have half-yearly numbers on hand, as a way to gauge momentum in the second half of the year when full-year results are presented.

Using that principle, this investor said debt impairment expenses in the Afterpay results aren’t tracking in the right direction:

For the full year, Afterpay booked total income of $924.7m, a gain of 78% from the prior year total of $405.5m.

The company’s annual receivables impairment expense came in at $195.1m, which was 106% higher than the prior year total of $94.5m.

Equity investor Andrew Brown was also less then enthused with the results:

While debate lingers around BNPL surrounding the actual cost of customer acquisition and the threat of competition from big entrants such as PayPal, those differences of opinion have made the sector one of the most-watched on the ASX.

When it comes to doubts around BNPL receivables and downward pressure on merchant surcharge fees, Twitter co-founder Jack Dorsey has confirmed he’s one billionaire that doesn’t care.

Dorsey’s US payments company Square Inc plans to shell out almost $40bn to buy APT in a share-based deal which will mark the biggest M&A transaction in ASX history.

And one of the strategic rationales for the deal is based around scale opportunities between Afterpay’s B2C channels and Square Inc’s core offering as a B2B payments facilitator.

UBS analysis

Before Square Inc announced it plans to acquire Afterpay for ~$126 per share, analysts at UBS thought it was worth more like $30.

Taking a closer look at the results, the UBS team also flagged some pressures on APT’s operating margins.

“Top-line metrics were pre-reported, and the focus will be on the proposed acquisition by Square,” UBS said.

UBS said net transaction losses also increased to 0.63% of underlying sales, up from 0.38% in the year prior, while the group’s operating expenses also edged higher.

“Below the revenue line, APT’s net transaction margin of 2.06% was slightly below consensus (2.12%),” UBS said.

Macro view

On a broader level, investor sentiment around the Afterpay results and BNPL reflects where investors stand on the post-COVID bull market. Is scale and revenue more important, or will companies get found out as liquidity tightens?

Pro investor James Whelan provided a breakdown of that split in an interview with Stockhead last week.

“It’s still a question of whether inflation will prove transitory,” Whelan said.

“Will there be a slight rate rise, will the market care, and what can the Fed raise rates to without hurting the US consumer?”

“If there is a normalisation of rates, then a lot of companies that have been able to get away scot-free with lofty valuations get found out.”