The Splitit (ASX: SPT) share price is down 5% to $1.35 today, but the buy-now-pay-later start-up is still up an incredible 6.5x since its initial public offering at just 20 cents per share in January 2019.
It's anyone's guess what's driving the amazing share price gains, although it's most likely a combination of hype around the buy-now-pay-later sector and momentum or day traders hoping to turn a quick profit from the rising share price.
On a fundamental investing level Splitit doesn't have much going for it.
It had just US$790k in revenue in the whole of 2018 and with only 380 active retail merchants signed up by the end of 2018 it's hardly going to have AfterPay Touch Group Ltd (ASX: APT) or Z1P Co Ltd (ASX: Z1P) quaking in their boots, but its appearance is notable for one reason.
Probably the biggest risk to the rise of AfterPay is a deep-pocketed competitor undercutting it on the margin it charges retailers.
For example on a pro forma basis AfterPay reported it charged retailers an average 3.9% of any single transaction for the half-year ending December 31 2018, with it possible for a rival to come along and say charge half that in an attempt to win market share.
A half-cost offer would be attractive to retailers of course where margins matter more than anything and as such this is the principal risk to AfterPay's future.
While AfterPay might prove the real deal for investors, I would not suggest punting on Splitit shares given its huge valuation and lack of revenues.