Tim Knapton: Buy now sell later, the surge in BNPL stocks
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In this regular column Stockhead contributor and seasoned tech analyst Tim Knapton looks at the significant happenings in the Tech market. This week he has turned his attention to the booming buy now, pay later (BNPL) market and runs the ruler over the ASX stocks in the space.
When the world’s largest tech investor takes a stake in an ASX-listed company it says things; first that the company must be special and second so must be the space it’s in.
The company is Afterpay Touch (ASX:APT) and the sector is buy now, pay later or digital lay-by, an extension of the e-commerce themes in our last two newsletters.
Buoyed by the arrival of Tencent as a 5 per cent shareholder, Afterpay has more than quadrupled since the post virus nadir barely a month ago, when the market was anxious over potential blow-outs in bad debt. The likelihood is that Afterpay will now further internationalise its business.
Not surprisingly, Afterpay’s smaller listed peers have all been significantly re-rated, but the probability is they will remain in focus given their enhanced growth prospects.
Sezzle (ASX:SZL), for example, is a US-based provider that offers an interest free service to its retail user base and a platform that is designed to boost conversion, basket size and purchase frequency for its rapidly growing clientele of over 10,000 merchants.
It grew merchant sales nearly eightfold last calendar year and almost quintupled them in the March quarter of this year.
The company is a direct beneficiary of the US government’s stimulus package through forgivable loans, expanded unemployment insurance and tax credits, all aimed at Sezzle’s core socioeconomic target segment.
Also based in the US, Splitit Payments (ASX:SPT) offers interest and fee-free monthly instalments to over 12 million shoppers.
It has exploited a surge in share price to raise $16m to fund accelerated growth, having already doubled revenues in the March quarter.
Openpay (ASX:OPY), meanwhile, has a footprint in the UK, Australia and New Zealand for its buy now, buy smarter offer which features a business to business (B2B) version recently adopted here by Woolworths.
It more than doubled active customers in the March quarter.
Then there’s emerging mid cap Zip Co (ASX:Z1P), which also offers a digital retail financing platform that’s generating annual transaction volumes of over $US2bn ($3.1bn) across Australia, NZ, US and South Africa.
Its app ranks highly across Apple and Google stores and its revenue run rate also more than doubled in the March quarter.
So, they’ve all run very hard recently and may need some consolidation but I suspect it’s not over yet in terms of medium-term upside, because this kind of digital financing accounts for only 8 per cent of the value of global e-commerce and that’s expected to exceed 20 per cent within three years.
Tim Knapton is CEO of TechVoyage, which provides videos, research and financial analysis on technology in its manifold forms and sectors.
Previously Tim was Head of Corporate Broking at Deutsche Australia and before that ran a research department for a leading broking house. For many years, Tim has supplied financial commentary on a freelance basis to various newspapers and magazines, including his own columns in the Australian Financial Review, BRW and Shares.