Are other ASX BNPL shares at risk of going down the same path as Openpay?

Like most ASX BNPL shares, Openpay stock rocketed higher in the early months of the market's meteoric pandemic rebound.

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Key points

  • ASX BNPL share Openpay entered receivership on Monday
  • Bad debts and rising interest rates have hampered the broader buy now, pay later sector
  • But the stronger BNPL stocks may well shake off the past year’s malaise to shine brightly once more

ASX buy now, pay later (BNPL) shares have come under renewed scrutiny this month following the collapse of Openpay Group Ltd (ASX: OPY).

Stock in the embattled BNPL company last traded on 31 January, when it closed down 7% for the day. Over the previous 12 months, the Openpay share price had fallen 58%.

What happened with Openpay?

Like most ASX BNPL shares, Openpay stock rocketed higher in the early months of the market's meteoric pandemic rebound. But it failed to hold those late 2020 highs and came under increased pressure as interest rates began to ratchet higher in mid-2022.

As The Motley Fool reported last Friday, Openpay looked to be having difficulties accessing its $41 million unused finance facilities, leaving the loss-making company with a balance of $17 million. That's notably less than the $18 million of cash burn during the last reported quarter.

On Monday, Openpay revealed that receivers had been called in.

At the time of writing, the Openpay platform is not enabling any new purchases, and its shares remain suspended.

Are other ASX BNPL shares at risk of going down the same path?

The question investors are pondering now is, what's the outlook for companies operating in the same sector, with a similar business model?

For some insight into how the sector had been performing, here are the share price returns over the past 12 months from some of the top ASX BNPL names:

  • Shares in Block Inc (ASX: SQ2), which acquired Afterpay in January last year, are down 16%
  • Zip Co Ltd (ASX: ZIP) shares are down 78%
  • Sezzle Inc (ASX: SZL) shares are down 72%
  • Splitit Payments Ltd (ASX: SPT) shares are down 2.5%

The standouts here are Splitit and Block.

Both ASX BNPL shares are in the red over the full 12 months, but not nearly as deeply as the rest.

While I don't have a functional crystal ball, the stocks that have lost close to, or more than, three-quarters of their value over the past year certainly appear to be in danger of following Openpay into receivership.

The stronger performers may well shake off the past year's malaise to shine brightly once more.

What the industry insiders are saying

Splitit CEO Nandan Sheth says his company's business model differs from most in that it makes use of credit from its customer's credit cards. It also transacts with the vendors rather than the buyers.

As reported by The Australian, Sheth said he wasn't surprised to hear that the first ASX BNPL share had entered receivership.

"When you're lending to subprime consumers with a very high write-off rate – in some cases 300 to 400 basis points of write-offs – and a super-high customer acquisition cost along with marketing costs, your path to profitability is going to be challenged," he said.

He also pointed to difficulties in selling the long-term story of the stock to new investors, squeezing out access to new capital.

 "To be very candid, I'm not surprised that this is happening," Sheth added. "I think we will see more consolidation in this space and we're going to see buy now, pay later players focus on profitability."

ASX BNPL sector a huge boon to Aussie economy

But don't go counting the ASX BNPL sector out just yet.

According to the Australian Finance Industry Association (courtesy of The Australian), the buy now, pay later industry contributed north of $18 billion to Australia's GDP. AFIA estimates there are 6.3 million Aussie BNPL customers.

"BNPL is low cost and low risk, the average BNPL transaction value is $136," AFIA chief executive Diane Tate said. "Consumers are able to save in interest and fee costs (relative to other financial products) and surcharge savings. Delaying payment allows for more effective budgeting."

While he believes not all of the current ASX BNPL shares will endure, Sheth does envision a strong future for the sector.

"Buy now, pay later is ultimately going to be a model that is very successful. And I squarely believe that Splitit is not going to be the only company that's in the market," he said.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Block and Zip Co. The Motley Fool Australia has positions in and has recommended Block. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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