ASX buy now, pay later shares leading the recovery

ASX buy now, pay later shares are leading the market recovery. Let's look at what's happening with the market's four favourite BNPL shares.

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Notwithstanding some of the falls we've seen today, ASX buy now, pay later (BNPL) shares have been among those leading the market recovery since the March downturn. All the market's BNPL shares have recorded significant increases as demand for their services continues rising despite the coronavirus crisis. On that note, let's take a look at how the ASX's four favourite BNPL shares are performing.

How are ASX BNPL shares performing?

Afterpay Ltd (ASX: APT)

Afterpay is the largest BNPL provider by market capitalisation. In fact, the meteoric rise of the Afterpay share price has led it to close in on the S&P/ASX 20 (ASX: XTL). The Afterpay share price fell to a low of $8.90 in March but has since gained 649% to currently trade at $66.72 (at the time of writing). In its most recent update, Afterpay reported underlying sales of $11.1 billion in FY20, up 112% on the prior corresponding period.

Afterpay's underlying sales have definitely been accelerating, with Q4 FY20 sales of $3.8 billion, up 127% on Q4 FY19. Q4 FY20 saw the highest quarterly sales performance ever, reflecting the increasing shift to online spending throughout the pandemic. Active customer numbers also grew to 9.9 million for FY20, a 116% increase on FY19. This also highlights the attractiveness of Afterpay's budget-focused business model in the current economic environment.

Active merchants reached 55.4k in FY20, a 72% increase over FY19. This was driven by strong merchant acceptance in the United States and United Kingdom, key growth markets for Afterpay. Active merchants in the US increased to 11.5k at 30 June 2020, up from 3.8k at 30 June 2019. Expansion into Canada is also expected in Q1 FY21. The UK exceeded 1k merchants in its first 12 months of operation.

Afterpay announced an $800 million capital raise yesterday. The funds are to be used for investing in growing underlying sales and prioritising global expansion in the short term. Since COVID-19 took hold, there has been a growing shift towards online spending. Furthermore, consumers have increasingly focused on budgeting whilst apparently developing somewhat of an aversion to traditional credit products. These trends organically increase the attractiveness of Afterpay's business model. As such, the company intends to leverage this momentum to expand customer offerings and potentially launch into new markets in late 2020 or early 2021. This week's announcement also included advice that the company's founders would each be selling down 10% of their respective holdings. Afterpay shares were placed in a trading halt yesterday and, so far, have fallen 2.13% since recommencing trade today.

Zip Co Ltd (ASX: Z1P)

The Zip Co share price has gained 414% from its March low and is currently trading at $6.04. In its most recent update, Zip Co reported a strong month in May. This included a 78% year-on-year increase in monthly revenue to $15.6 million. Transaction volumes also increased 63% to $189.3 million. The company reported that it remains on track to hit its FY20 target of $2.2 billion in annualised transaction volume.

Zip Co has also noted the shift away from cash to digital, contactless payments and eCommerce.  The company expects eCommerce penetration to remain at elevated levels post COVID-19. This is largely due to increased numbers of consumers gaining familiarity with shopping online and, as such, more retailers investing in the space. Nonetheless, the economic downturn raises the spectre of bad debts for BNPL providers that extend credit to customers. 

Zip Co reported net bad debts increased to 2.16% in May, up from 1.99% in April. Prudently however, the company did advise it has tightened its onboarding credit requirements. Furthermore, no material change to the number of requests for hardship assistance were reported. These requests peaked at the end of March at less than 0.8% of receivables. Monthly arrears for Zip Co actually declined to 1.47% in May, down from 1.57% in April, an impressive result in the current climate.  

Sezzle Inc (ASX: SZL)

The Sezzle share price has soared an incredible 1256% from a low of 37 cents in March and is now trading at $5.02. The company's share price was bolstered by its announcement yesterday that annualised merchant sales are expected to reach $1.4 billion by the end of 2020. 

In the June quarter, Sezzle's active customer numbers rose 28% quarter-on-quarter to 1.48 million. This represents a 243% year-on-year increase. Merchant numbers increased 27% during the quarter to reach 16,112, a 219% year-on-year improvement. These result reflect a trajectory of solid growth across all key metrics, despite global economic headwinds. Customers are also utilising Sezzle's product more often. The company's repeat usage rates for the quarter were 87.5% compared to 77.2% in 2Q FY19. Its purchase frequency numbers are also on the rise and are now approaching 15x per annum. 

Sezzle's Executive Chairman and CEO Charlie Youakim said, "Our performance reaffirms our product's utility to consumers looking for a smarter way to budget their personal finances and the overall market shift to eCommerce". Nearly 100% of Sezzle's transactions are processed via eCommerce, meaning the company is well positioned to benefit from the increasing shift to online. 

Splitit Ltd (ASX: SPT)

The Splitit share price is up nearly 610% from its low of 22 cents in March and is now trading at $1.56. This includes a 13% increase today after Splitit announced record growth in Q2 FY20 this morning. The company's merchant sales volumes grew to US$65.4 million, up 260% on Q2 FY19 and 176% on Q1 FY20. Splitit reported gross revenue of US$2.4 million for the quarter, which represents a 460% increase on Q2 FY19 and a 246% increase on Q1 FY20. 

This acceleration in Splitit's growth was thanks to the addition of large, new merchants in Q1 and Q2. Merchant numbers grew to over 1,000, up 104% from Q2 FY19. Total shoppers are now over 309k, up 85% from Q2 FY19. Many of these were first time users, with the number of repeat shoppers expected to increase in future periods. 

CEO Brad Paterson said, "June saw a continuation of the strong business momentum we experienced in April and May. Consumers are making better use of their existing credit to preserve cash, while demand from higher-value merchants is ramping up, supported by the accelerated shift towards eCommerce as a result of COVID-19". 

Splitit continues to attract larger merchants wanting to provide installment solutions to their credit card customers and improve conversion rates. The company saw its average order value increase 21% over the June quarter to US$893. More than 90% of all the company's transactions were eCommerce or mobile payments. 

Splitit has a number of partnerships which are expected to drive future growth. These include agreements with Mastercard and Stripe.The partnership with Stripe will accelerate merchant acceptance, with merchants set to be able to on-board in minutes. Under the Mastercard agreement, Splitit's solution will be integrated with Mastercard's suite of technology. This will enable a seamless and secure customer experience at checkout.

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 ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Sezzle Inc. 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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