How is the buy now, pay later sector performing in 2020?

The ASX buy now, pay later sector boomed in 2019. Headwinds have, however, emerged of late. Here we take a look at how 4 ASX BNPL providers are performing.

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The buy now, pay later (BNPL) sector boomed in 2019 as interest in the industry expanded exponentially. Headwinds have emerged of late, however, in the form of regulatory pressures. Here we take a look at how 4 ASX BNPL providers are performing so far this year. 

Afterpay Ltd (ASX: APT)

Afterpay shares reached over $40 in February but have since tumbled nearly 50% as the overall market continues to fall. Afterpay shares were also impacted by a half year loss greater than analyst expectations, despite strong growth in underlying metrics. 

Afterpay reported a 109% increase in underlying sales for the half year which reached $4.8 billion from $2.3 billion in 1HFY19. Active customers were up 134% to 7.3 million and active merchants were up 86% to 43.2k. 

Continued momentum in Afterpay's global expansion was reported, with US underlying sales of $1.4 billion, more than 5 times 1HFY19. The addressable online opportunity from Afterpay's merchants in the US and UK is estimated at $30 billion. 

Group income increased 96% on 1HFY19 to $220.3 million. Earnings before interest, tax, depreciation and amortisation (EBITDA), however, declined 51% to $6.8 billion due to material investments in marketing, people, and technology targeted towards accelerating growth in existing markets and readying for further geographic expansion.

A statutory loss after tax of $31.6 million was reported, impacted by one-off and non-cash items including share based payments. 

Afterpay is aiming to reach 9.5 million active customers by the end of FY20, and wants to exceed its underlying sales target of $20 billion by FY22. Regulatory headwinds may, however, temper the BNPL provider's rapid growth. 

While Afterpay welcomed the draft BNPL Code of Practice which has been released for public consultation, the company has argued against the introduction of surcharging to the sector. The RBA has released an issues paper considering allowing merchants to surcharge customers who use BNPL services, similarly to surcharges applied to the use of debit and credit cards by merchants. 

Afterpay has argued that its service is not comparable to existing regulated payment forms. It believes it provides considerable services to merchants that exceed the value of fees it charges to merchants. 

Openpay Group Ltd (ASX: OPY)

Openpay shares have fallen 66% from their February high point of $1.40 and are now trading at just 47 cents. The BNPL provider reported record growth and strong momentum for the first half but its share price has suffered under the current market turmoil. 

Openpay reports active plans grew 187% in the first half compared to the prior corresponding period, while customer numbers grew 99%, and merchant numbers were up 74%. Openpay finished the half with 206,434 customers, up from 103,700 in 1HFY19, with growth strong across all merchant verticals. There were 1,894 active merchants at the end of the half.

Total transaction value for the first half grew to $84.4 million, up 95% on the prior corresponding period. Revenue grew 73% to $8.3 million, reflecting continued growth in customers, plan volumes, and propensity of use. Merchant fees accounted for 49% of revenue (54% in 1HFY19) and customer fees accounted for 51% of revenue. 

Openpay reported a statutory loss before tax of $15.9 million for the half, compared to a loss of $4.6 million in 1HFY19. The company reports that it is well positioned to fund continued growth with cash on hand of $52.6 million plus $51 million of undrawn facilities in Australia. 

After launching in the UK in June 2019, Openpay has made a solid start in the market launching with several high impact merchants. JD Sports, a £2.1 billion UK retailer, is expected to go live during Q3FY20. 

Openpay has also entered the B2B sector with an agreement with Woolworths Group Ltd (ASX: WOW) representing a major milestone for the company. Under the agreement, which has an initial term of 3 years, Woolworths will roll out Openpay's new SaaS platform, Openpay for Business. Implementation of the platform will ramp up in 2HFY20, with revenues expected to be generated in 1HFY20. 

Zip Co Ltd (ASX: Z1P)

Zip Co shares have fallen nearly 75% from their high of over $5.50 in October last year and are currently trading at $1.40. The current market sell-off coincided with the release of Zip Co's half year results meaning strong growth has not been enough to prop up the share price. 

Zip reported record revenue of $69.6 million, a 103% increase on 1HFY19. Transaction volumes increased 95% to $964.7 million, while the loan book surpassed $1 billion. The BNPL provider boasted 1.8 million customers in Australia and New Zealand, transacting across 21k merchants. 

Merchants which joined the platform during the half include Amazon Australia, Big W, carsales.com, Ola, Optus, and Seafolly. The Zip app continues to rate in the top 10 across both the Apple and Google stores. 

During the half Zip acquired instalment technology platform Partpay for $60 million. This provides immediate exposure to New Zealand, the UK, US, and South Africa. Subsequently, the company increased its investment in US BNPL provider QuadPay to 15%. 

Zip also acquired SME credit provider Spotcap for $9 million. Zip is leveraging Spotcap's credit decisioning capability as part of a SME-focused BNPL offering. The credit decisioning engine leverages traditional credit data, accounting data, and bank transactional data to provide real time on boarding. 

Splitit Ltd (ASX: SPT

Splitit shares peaked at $1.60 a year ago but have since fallen to 36 cents. In its full year results released at the end of February, the BNPL provider reported record revenue of US$1.65 million, a 108% increase, driven by growth in merchant fees. 

Merchant sales increased to US$88 million, up 52% on the previous year as total active merchants climbed 97% to 720. Active shoppers increased 55% to 118,783. North America was the fastest growing region with merchant sales volumes increasing 78% year on year. 

Splitit listed in January last year and has made significant investments in infrastructure, technology, talent and partnerships. According to CEO Brad Paterson, this has established a platform for strong future global growth. 

Splitit has made a deliberate shift toward merchants with higher average order values. As a result, it has exited arrangements with several merchants who processed high transaction volumes but at low average order values. The average order value remains high at US$863 and repeat usage by active shoppers grew by 81%. 

The adoption of Splitit is expected to accelerate in 2020 as the company expands into its chosen market verticals and streamlines the merchant onboarding process. Paterson said the company expects "to see merchant sales value and resulting revenue accelerate rapidly as we shift our focus to executing on our go-to-market plans"

Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO and ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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