Why the Splitit (ASX:SPT) share price is sinking 5% lower today

The Splitit Ltd (ASX:SPT) share price is tumbling lower on Wednesday. Here’s why the BNPL provider’s shares are under pressure…

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The Splitit Ltd (ASX: SPT) share price is under pressure this morning following the release of its first quarter update.

At the time of writing, the buy now pay later (BNPL) provider’s shares are down 5% to 80.5 cents.

How did Splitit perform in the fourth quarter?

Splitit has just completed a reasonably disappointing first quarter of FY 2021.

Although the headline number looks impressive, digging a little deeper there are worrying signs for the BNPL provider.

For the three months ended 31 March, the company achieved Merchant Sales Volume (MSV) of US$82 million. While this was an increase of 247% compared to the same period last year, it was actually down 5% quarter on quarter from US$86.3 million.

It is also well short of what many of its rivals are reporting. For example, Afterpay Ltd (ASX: APT) just reported quarterly underlying sales of $5.2 billion and Zip Co Ltd (ASX: Z1P) delivered quarterly transaction volume to $1.6 billion.

In respect to revenue, Splitit recorded first quarter gross revenue of US$2.7 million, which was up 292% on the prior corresponding period. Though, once again, it was down from gross revenue of US$2.9 million in the fourth quarter.

If this trend continues throughout the remainder of FY 2021, it will lead to Splitit going backwards in respect to MSV and revenue. This could be bad news for the Splitit share price given its lofty valuation on limited revenue.

Why is slowing Splitit’s growth?

Management blamed the slowdown in its growth on a deliberate shift away from debit cards. It believes its MSV in Q1 2021 would have surpassed its fourth quarter MSV if it were not for the shift.

The company advised that it has made the switch as credit cards present a significantly lower risk profile for the company.

What else did Splitit report?

The company’s closing cash position was US$75 million. This follows cash burn of US$7.6 million during the quarter.

Also catching the eye was management’s intriguing decision to no longer report repeat shoppers, 12-month active customers, or 12-month active merchant data.

It doesn’t believe these are appropriate near-term performance metrics but rather long-term growth avenues. As a result, it will cease reporting these metrics for the foreseeable future.

Given how these are good indicators of how BNPL providers are performing, and standard metrics in the industry, its decision to not disclose them could be concerning for investors.

In light of this and its slowing growth, it isn’t overly surprising to see the Splitit share price tumble today.

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James Mickleboro 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 has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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