The Afterpay Ltd (ASX: APT) share price is likely to come under pressure on Friday.
This follows a negative reaction on Wall Street to the release of the third quarter results of Square, Inc (NYSE: SQ).
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Why could the Afterpay share price tumble?
The Afterpay share price could tumble today after a pullback in the Square share price overnight following the release of its third quarter update.
As Square is acquiring Afterpay via an all-scrip deal, the value of the takeover price rises and falls with the Square share price.
Investors were selling Square shares in after-hours trade due to its revenue falling well short of analyst expectations during the quarter. Square's total net revenue came in at US$3.84 billion, down from US$4.68 billion in the second quarter and short of the analyst consensus estimate of US$4.48 billion.
Similarly, Square's adjusted EBITDA fell quarter on quarter to US$233 million from US$360 million.
What does this mean for the takeover?
At the time of writing, the Square share price is fetching US$235.80 in after-hours trade.
Afterpay and Square have agreed a deal that will see Afterpay shareholders receive a fixed exchange ratio of 0.375 shares of Square Class A common stock for each Afterpay share they hold.
Based on the current Square share price and the latest exchange rates, this equates to a takeover price of $119.43.
This is actually lower than the Afterpay share price of $124.38 at the close of play on Thursday, which doesn't bode well for today's trading session. Particularly given how shares will often trade at a discount to the takeover price to account for uncertainties and such events like this.
Though, it is worth noting that after-hours trade often represents a bit of a knee jerk reaction from investors. There's always a chance that Square's shares could reverse these declines once the market reopens and brokers have fully digested the result.
