Are Afterpay (ASX:APT) shares a buy before they convert into SQ2 shares?

Afterpay shares will soon turn into SQ2 shares…

| More on:
A woman with black afro hair and wearing a white t-shirt shrugs and purses her lips

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Afterpay Ltd (ASX: APT) share price has failed to build on Wednesday's gains.

In afternoon trade, the buy now pay later (BNPL) provider's shares are down 1.5% to $75.80.

Why is the Afterpay share price falling?

The Afterpay share price is under pressure today following a pullback in the Block (previously named Square) share price overnight.

Yesterday Block received the final approval required to implement its takeover of Afterpay. This means that in a matter of days the Afterpay share price will no longer exist and will instead be absorbed into the payment giant.

The combined company will then have a secondary listing on the Australian share market under the SQ2 ticker code. It is due to commence trade on the ASX on 20 January on a deferred settlement basis before trading normally from 2 February.

Should you buy Afterpay shares before they convert to SQ2 shares?

One leading broker that appears to believe that investors should buy Afterpay shares now is Macquarie Group Ltd (ASX: MQG).

The note, courtesy of the Australian, reveals that its analysts feel there's a buying opportunity here for investors. This is due to their belief that the Square share price is undervalued at the current level.

Macquarie commented: "APT's share price should trade in line with SQ going forward and whilst the story is a bit more complicated now vs when the proposed acquisition was initially announced in terms of the BNPL operating environment, the potential impact to Cash App from waning government payments, and tech multiples coming in on higher rate expectations, SQ shares are still quite undervalued in our view."

US growth slows

Though, it is also worth highlighting that Morgan Stanley estimates that the company's growth in the key US market is slowing.

Yesterday's note reveals that the broker estimates that Afterpay's app downloads grew 10% year on year in December in the US. This was notably lower than its rivals. The broker estimates that Affirm's app downloads grew 90% and Klarna's grew 70%.

However, if Block integrates the Afterpay BNPL service into its Cash App in 2022, which has over 40 million active users, these lagging download rates won't be much of a problem.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Afterpay Limited and Block, Inc. The Motley Fool Australia owns and has recommended Afterpay Limited. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on BNPL shares

A woman sits back and enjoys the view from a paraglider, indicating share price lifts for ASX travel and adventure shares
BNPL shares

Up 71% in 3 weeks, have Zip shares topped out?

Despite the stellar run higher, Zip shares are still trading at a fraction of their February 2021 highs.

Read more »

A woman sits on a chair smiling as she shops online.
BNPL shares

Why is the Zip share price the best-performing ASX 300 stock so far this year?

The best-performing ASX 300 stock of 2024 so far is an unlikely hero.

Read more »

A happy girl in a yellow playsuit with a zip gives the thumbs up
Share Gainers

If I'd put $5,000 into Zip shares on 9 October, here's what I'd have now!

The stars have been aligning for Zip shares.

Read more »

woman using affirm to pay
BNPL shares

Up 288% in 6 months, Zip share price tipped for more outsized gains

Zip shares have rocketed 288% in just six months.

Read more »

A businessman stacks building blocks.
BNPL shares

Up 93% since October, why are Block shares marching ahead again on Friday?

ASX 200 investors have been snapping up Block shares.

Read more »

A man wearing glasses and a white t-shirt pumps his fists in the air looking excited and happy about the rising OBX share price
BNPL shares

Zip share price up 58% in 7 trading days! What's going on?

This BNPL provider has been on fire recently. But why?

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
BNPL shares

Shares sold: Why Zip is under fire from its own shareholders

Some Zip investors had their shares sold without their knowledge.

Read more »

Sad woman with her hand on her head and holding a credit card.
BNPL shares

Zip share price tumbles 9% despite explosive first-half growth

Zip had a strong half and delivered a big improvement in key metrics.

Read more »