The Sezzle Inc (ASX: SZL) share price is falling hard again today, down nearly 7% in early afternoon trading. The Sezzle share price reached an all-time high on 28 August of $11.34 per share. That handed Sezzle shareholders a 583% gain since the opening bell on 2 January.
Since that high, the Sezzle share price has fallen sharply, down more than 46%. That still leaves Sezzle's share price up 268% in 2020. But clearly investors are beginning to have doubts about its current valuation.
Sezzle isn't the only company in the buy now, pay later (BNPL) space that's been falling. Most every ASX listed BNPL share has lost ground over the past two weeks. That includes the dominant Aussie BNPL player, Afterpay Ltd (ASX: APT).
The Afterpay share price is down nearly 1% in intraday trading.
Afterpay hit its own all-time high of $92.48 per share on 25 August. Since that high, Afterpay's share price is down 19%. The Afterpay share price is also still well-up for the year, however, with a gain of 144.5% since 2 January.
But as with Sezzle, more investors appear to be taking profits off the table than buying into the dip.
Why are the Sezzle and Afterpay share prices sinking?
Both the Sezzle and Afterpay share prices are partly subject to wider selling today, with the All Ordinaries Index (ASX: XAO) down 0.6% at time of writing. And technology shares are falling slightly harder, with the S&P/ASX All Technology Index (ASX: XTX) down 0.97%.
But both Sezzle and Afterpay are down more.
One of the prime drives appears to be the dawning realisation that the moats — or barriers to entry — in the BNPL space are easily breached by new entrants with deep pockets.
Those include United States payments giant Paypal Holdings Inc (NASDAQ: PYPL), which announced it is launching its own BNPL platform 'pay-in-4'. National Australia Bank Ltd. (ASX: NAB) has also announced it's launching an interest-free credit card that allows customers to repay their purchases in instalments for a fixed monthly fee.
Addressing Afterpay's current situation, David Pace, co-manager of the Greencape Capital High Conviction Fund said (as quoted by the Australian Financial Review):
We can't find value in Afterpay. Now that it's a larger index position, we see that as opportunity to earn alpha by not owning it over the medium to long term. It's always about benchmarking but from a bottom-up perspective we don't think that the barriers are high enough for Afterpay and we don't think the earnings are sustainable enough.
Indeed, as government stimulus begins to unwind, we're unlikely to see a repeat of the consumer spending splash on big ticket retail items. That translates to less demand for BNPL services, which could put further downward pressure on the Afterpay and Sezzle share prices.
