Shares in ASX buy now, pay later (BNPL) providers were smashed in the March downturn. Since then, however, they have seen record comebacks as their business models turn out to be more resilient than expected in the face of economic downturn.
We take a look at how each of the ASX BNPL shares is performing in the current economic climate.
Afterpay Ltd (ASX: APT)
Afterpay shares gained 29% yesterday following the BNPL provider's latest update, and are now up 219% from their March low. The company reported March was its third-largest underlying sales month on record, behind seasonally higher November and December 2019. Underlying sales in the March quarter increased 97% compared to Q3 FY19.
Afterpay reported underlying sales of $7.3 billion for the year to date, growing at 105% compared to the prior corresponding period (pcp). The mature Australia and New Zealand region continues to be highly profitable with positive underlying cash flow. Estimated profitability on a year to date basis has increased relative to 1H FY20 and for the month of March relative to the pcp.
Online sales in March represented 88% of total global underlying sales, demonstrating Afterpay's significant exposure to online spending. This is likely to be beneficial in the current environment. Some moderation in sales was seen in the second half of March with global underlying sales 4% lower in the second half of the month than the first half.
Healthy growth in merchant and customer numbers was recorded during the March quarter. Active customers grew to 8.4 million, up 122% on the pcp, while merchant numbers grew to 48,400 globally, up 78% on the pcp. In Australia, eBay went live on 3 April and new merchants continue to onboard in all markets at volumes in line with pre-coronavirus levels.
Income margins for the month of March and for the financial year to date are higher than 1H FY20. Gross losses for March are estimated to be in line with 1H FY20 despite an increased contribution from newer markets that are initially higher loss early in their lifecycle.
Afterpay has made pre-emptive adjustments to risk settings which have had a positive impact on loss performance lead indicators in the second half of March and early April. The company has a strong balance sheet and liquidity position, meaning there should be no requirement to raise capital in the foreseeable future.
Splitit Ltd (ASX: SPT)
Shares in Splitit also surged yesterday, up 31%, and up a total of 118% from their March low. Splitit advised in March that it continues to see growth from new business demand despite the effects of coronavirus.
Splitit operates a unique business model in that it does not extend credit to customers. Instead, it allows customers to use an existing debit or credit card and split purchases into monthly payments. Splitit says it serves higher-income customers who are typically over 30 years old, have multiple credit cards, and on average have 70% of unutilised credit available.
With access to new credit becoming more of a challenge in the economic downturn, Splitit says it enables consumers to efficiently utilise the credit they have. "We are more relevant than ever to consumers who need flexibility in payment terms on their own earned credit," CEO Brad Paterson said.
Splitit has no exposure to consumer defaults. The company, therefore, does not need to monitor and prevent payment defaults or bad debt-related risks and is not subject to regulatory oversight associated with new credit provisions. The company's liquidity and balance sheet position remains firmly intact and will allow for the implementation of growth plans.
Zip Co Ltd (ASX: Z1P)
Zip shares are up 120% from March lows with the company reporting record results for the March quarter last week. Record quarterly revenue of $45 million was reported, up 96% year-on-year. Quarterly transaction volumes increased 84% year-on-year to $518.7 million.
Zip also saw healthy growth in customer and merchant numbers. Customer numbers were up 67% year-on-year to 1.95 million while merchant numbers grew 58% to 22,744. New merchants added included Grill'd, Nandos, and Barbeques Galore.
During the March quarter, Zip launched its 'Shop Everywhere' product which allows Australian app users to pay with Zip at any online store. The functionality works by generating a single-use virtual card number at checkout. This allows customers to pay for their everyday needs such as groceries and bills and smooth repayments over time. This is likely to be a well-received initiative in the current climate and diversifies Zip from discretionary retail spend.
Zip believes it is uniquely well placed to trade through the current economic environment given its exposure to defensive, recession-proof sectors and online, as well as its customers being older, credit-verified millennials. Zip customers have an average age of 35, representing a slightly older, more financially savvy customer segment. The company reports a reduction in sales across fashion, travel, and hospitality has been offset by strong demand for everyday categories, bills, home improvements, and office supplies.
Sezzle Inc (ASX: SZL)
Shares in Sezzle are up nearly 290% from their March low with Sezzle reporting record first-quarter results last week. Underlying merchant sales grew 321% year-on-year to US$119.4 million. Active merchant numbers grew 27% quarter-on-quarter to 12,715 while customer numbers grew 26% during the quarter to over 1.1 million.
Sezzle reports that it has seen very little negative impact from the coronavirus pandemic. The company, which operates in North America, says consumers are increasingly turning to eCommerce to meet their needs. The shift to online shopping has positioned Sezzle as a key partner for merchants looking to offer more flexible payment options to their customers.
"Consumers are looking for a smarter way to budget their personal finances, and merchants are looking to add more flexible payment options to drive sales," Sezzle CEO Charlie Youakim said, "both groups are turning to Sezzle to meet their needs."
Sezzle reported that thus far, it has not seen any impacts on credit quality or repayments. It reports it has ample liquidity to uplift its growing business operations but nonetheless has taken deliberate steps to streamline operations by doing more with less. "Our financial position remains strong, giving us the runway to weather protracted effects from the global pandemic," Youakim said.
