Fintech is a broad term that refers to any company that applies technology to the world of finance.
Some of the products and services offered by these types of companies include payment processing, online and mobile banking and online financial services, to name a few.
As you may already be aware, there is one particular sub-category of the fintech sector that’s taken the ASX by storm in 2020 – and that’s buy now, pay later (BNPL). In fact, BNPL players have dominated the cohort of top performing ASX fintech shares in 2020.
Let’s take a closer look at 6 of these fintech shares, and find out why they fared so well in 2020.
|ASX fintech share||1-year share price performance||Share price (at the time of writing)||Market capitalisation|
|Afterpay Ltd (ASX: APT)||295%||$118.77||$33.8 billion|
|Sezzle Inc (ASX: SZL)||200%||$6.23||$0.6 billion|
|Splitit Ltd (ASX: SPT)||79%||$1.22||$0.5 billion|
|Pushpay Holdings Ltd (ASX: PPH)||72%||$1.72||$1.9 billion|
|Zip Co Ltd (ASX: Z1P)||46%||$5.30||$2.9 billion|
|Douugh Ltd (ASX: DOU)||467%||$0.17||$0.1 billion|
No need for introductions here. The Afterpay share price has returned almost 300% for investors over the year.
But if you haven’t followed this market darling closely, you might not be aware it achieved this feat the hard way, with Afterpay shares plummeting as low as around $8 back in March. If you had purchased Afterpay shares in March and held on to them until today, your return would have been a staggering 1,400%!
So how did the company do it?
Afterpay transacted a whopping $11.1 billion for the FY20 full year, an increase of 112% year on year. The company followed this up with a strong first quarter of FY21 with underlying sales growth of 115% to $4.1 billion. Its active customers also grew globally, rising 98% to 11.2 million within the year.
According to Afterpay , its customer base – which consists mainly of Gen Z and Millennials – provides it with a strong tailwind going forward. Afterpay revealed that Gen Z and Millennials represent 36% of the total retail spend in Australia. By 2030, that is expected to grow to 48% as more of Gen Z enter the workforce. In the US, that share of retail spend will also increase from 32% to 48%.
The company has also been actively expanding globally. In 2020, Afterpay launched its services in Canada, followed by the acquisition of Pagantis – a European BNPL player which will open the company’s path to Spain, France, and Italy. Furthermore, Afterpay recently established an office in Singapore, paving the way for its entrance into Asia.
Sezzle is another BNPL player that has seen a meteoric rise in its share price in 2020. The Sezzle share price has risen by around 200% over the year.
How does Sezzle work? A shopper who chooses Sezzle instead of a credit card at checkout pays one quarter of the purchase price immediately. The shopper then pays the remainder across three interest-free installments. Sezzle makes money not from the shopper, but from the retailer, which pays the company a fee for each transaction.
November represented the highest monthly underlying merchant sales (UMS) performance since the company’s inception. Sezzle reported UMS of US$113 million for the month, which represents an increase of 188.5% compared to the prior corresponding period.
The company also said it has added 1 million new customers since February, with its total active customers now surpassing the 2 million mark.
Sezzle believes payment instalments will be a megatrend going forward. The company expects that in the United States, at some point in 10 years, “we’re going to go shopping and see instalment prices on the shelf”.
The Splitit share price has gained almost 80% over the year.
The company’s business model deviates slightly from the traditional BNPL model. It enables customers to pay for purchases with an existing credit card by splitting the cost into interest and fee-free monthly payments, without additional registrations or applications.
Unlike Afterpay, which has a reasonably modest average order size, Splitit is being used for higher value items. Management notes that its average order value remains above $1,000.
Splitit achieved record merchant sales volume (MSV) during the Black Friday and Cyber Monday promotional period in late November. Over that holiday shopping event, the company reported MSV of US$15.3 million. This was an increase of 216% on the same period a year earlier.
This led to gross revenue for the quarter of US$2.4 million, which was up 318% on the prior corresponding period.
Splitit has recently announced a partnership with Quickfee, an Australian company that provides payments services to accountants and legal firms. The company said this partnership could grow its addressable market by 650,000 accounting and law firms in the US alone.
At the time of writing, the Pushpay share price is up by around 72% over the year.
Pushpay is a donor management platform provider that has been growing its share of the US church market at a rapid rate over the last few years. It also sells the Church Community Builder software, a subscription-based church management platform that enables management of various church activities.
Pushpay is therefore doing business in a very niche market. You may initially think of this as a small niche, but the market size in donation giving reached US$124 billion for 2018 in the US alone.
This has led to the company delivering stellar revenue and operating earnings growth.
At the end of the first half of FY21, Pushpay increased its earnings guidance for the year ending 31 March 2021 to between US$54 million and US$58 million. This will be more than 115% higher than FY 2020’s earnings before interest, tax, depreciation, and ammortisation (EBITDA) of US$25.1 million.
Broker Goldman Sachs is also positive on the ASX fintech share and believes it is well-positioned for growth. The broker has a conviction buy rating and $10.35 price target (now $2.59 after Pushpay’s 4 for 1 share split) on its shares.
The Zip share price has not seen the triple digit rise achieved by its competitor Afterpay, but it has risen by a very respectable 46% over the year.
In FY20, the BNPL player delivered an impressive 175% jump in revenue to $253 million.
The company has continued that strong form, announcing recently that it continues to deliver record results across all regions. Zip said its transaction value of $577.1 million in November was a record, which is up more than 100% year on year. Based on this, Zip’s transaction value is now annualising at almost $7 billion.
Its US brand, Quadpay, also saw significant transactions growth in November, and total customers have now reached 5.3 million.
In December, Zip successfully completed a $120 million capital raising to fuel its growth in existing countries, explore new markets and further product expansion.
With the smallest market capitalisation of the 6 companies, I’ve put Douugh last on the list. This ASX share produced a superior share price return of over 467% since its initial public offering (IPO) in early October.
Douugh listed at an oversubscribed IPO share price of 3 cents.
The company believes the current business model operated by banks and neo-banks is outdated, and aims to disrupt the status quo with a radically new banking model.
Douugh’s core product is its AI-powered smart phone app and bank account that allows its customers to take control of their financial wellness. Significantly, the company entered into a global partnership with Mastercard Inc in 2019.
In November, Douugh announced its official launch in the US after a successful 18-month beta trial. Its go-to-market growth strategy will be its utilisation of Google’s AI-powered ad bidding platform to target customers.
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Returns as of 6th October 2020
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Mastercard. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of PUSHPAY FPO NZX and ZIPCOLTD FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Mastercard, PUSHPAY FPO NZX, and Sezzle Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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