Shares in the All Ordinaries Index (ASX: XAO) buy now, pay later (BNPL) stock closed yesterday trading for 30 cents. During the Thursday lunch hour, shares are swapping hands for 28.5 cents apiece, down 3.3%.

For some context, the All Ordinaries is down 1.0% at this same time.

Here's what's got investors jittery.

What's pressuring the Zip share price on Thursday?

With today's losses factored in, the Zip share price is down a painful 53% over 12 months.

Zip isn't the only stock in the red today, though, with the broader BNPL sector coming under selling pressure across the globe.

Here in Australia, the Block Inc (ASX: SQ2) share price, for example, is down a steep 7.9%.

The turmoil across the pay by instalments companies looks to have been spurred by France-based payments company, Worldline SA (EPA: WLN).

The Worldline share price closed down 59% on the French market overnight after the company cut its full year guidance. With recession concerns mounting in the EU, Worldline cited a slowdown in sales, particularly in its core market Germany, for its reduced full-year forecasts.

The sell-off spread to other European listed payments companies and also impacted US listed BNPL stocks.

In fact, the Zip share price is faring better than most, with Affirm Holdings Inc (NASDAQ: AFRM) shares falling 15% and PayPal Holdings Inc (NASDAQ: PYPL) shares closing down 5% in US markets overnight.

Atop recession fears, BNPL investors are awakening to the fact that global interest rates may remain higher for longer than previously priced in.

Here in Australia, the odds of another rate hike from the RBA increased yesterday after the ABS reported that annual inflation of 5.4% was still running well above the central bank's target range of 2% to 3%.

Earlier this month, newly appointed RBA chair Michele Bullock reiterated that the bank "remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome".

The series of rate increases ushered in over the past year and a half have already thrown up significant headwinds for the Zip share price. Shareholders will be hoping the RBA takes a dovish turn.

The post Down 53% in a year, why is the Zip share price tanking again today? appeared first on The Motley Fool Australia.

What happened

Shares of fintech stocks Upstart (NASDAQ: UPST), Affirm (NASDAQ: AFRM), and SoFi (NASDAQ: SOFI) were in crash mode today, with each down between 8% and 9% as of 2:27 p.m. ET.   

Lately, these beaten-down fintech stocks have been among the most volatile to both the upside and the downside, and their movements are largely based on macroeconomic news.

Today happened to be a big down day in the market following yesterday's big rally, as interest rate and recession fears, along with perhaps some end-of-quarter liquidations by hedge funds, likely played a role in their synchronous decline.

So what

Stocks have been in free fall in September, especially technology growth stocks following a recent spike in long-term Treasury bond yields, and fintech stocks appear to be caught up in the selling.   

Young, high-growth fintech stocks appear to be seen as a risk-on trade by investors, and investors are fleeing risk today amid so much global uncertainty. Today, U.S. jobless claims came in lower than expected, reflecting the very tight job market and potentially fueling "sticky" inflation. That could spur the Federal Reserve to continue hiking interest rates at a rapid pace.

If inflation and interest rates continue their rapid rise, higher interest rates may actually help some mature, profitable banks with low funding costs, but smaller, unprofitable fintechs will likely see their value diminish, since their profitability is still well into the future.

On the other hand, there is also another danger that central banks "overdo it" in their fight against inflation, pushing rates higher until we have a broad recession. That could lead to joblessness and higher charge-offs for loans. Investors will likely also take a skeptical stance with these three stocks, as they don't have as long a history of underwriting as large, older banks. This is especially true for Upstart, which claims its AI models are a new and better way to underwrite loans than traditional FICO scores.

Fintech stocks also have the problem of funding their loans when rates rise. Large, national banks such as Bank of America (NYSE: BAC), for instance, can charge very low deposit rates due to their size, national scale, and recognizable brand. That allows them to generate lots of leverage in net interest income as rates rise, as they can charge higher interest rates without having to raise deposit rates as much. 

That's not the case with fintechs. For instance, Upstart had to resort to using its balance sheet this year to fund some of its loans. That was a departure from its initial business model of selling all loans to third-party banks and credit unions, as loan buyers balked when interest rates rose rapidly.

For its funding, Affirm relies on warehouse facilities, securitizations, and other forward-flow commitments. These are generally higher-rate options than bank deposits.

Yet even SoFi, which acquired a bank charter earlier this year that gave it access to deposits, has had to raise its deposit rate APY up to 2% as of August, up from 1.5% as recently as June, in order to attract depositors.

Basically, the smaller you are and the earlier you are in your corporate life as a financial company, the higher your funding costs will be relative to large institutions. That tends to put these companies further out on the risk curve, which opens them up to charge-offs.

Now what

With these stocks down so much from their highs, between 82% and 95%, they could have substantial upside if the economy avoids a recession and interest rates moderate. However, there is significant uncertainty on those fronts, with most economists skeptical the Fed can engineer a "soft landing."

Thus, these former highfliers remain high-risk, high-upside bets that a recession will either be avoided or that it will be shallow and mild. They remain appropriate only for investors comfortable making volatile, high-upside bets that could also yield very big losses.     

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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It's been a painful year for Shopify Inc. (NYSE: SHOP) and its shareholders. The company's coronavirus tailwind came to a screeching halt, leading to financial results that haven't been up to par. The e-commerce specialist's 10-for-1 stock split did little to improve its stock market performance; as things stand, Shopify is currently hovering near its 52-week low.

However, Wall Street has faith in the tech giant, and analysts' average price target of $79.45 is close to triple its $27.85 share price as of this writing. Is the Street right about Shopify?

What's wrong with Shopify?

Shopify has been the victim of various market-wide headwinds. Among these are interest rate increases that can impact the value of corporations. In an environment with higher interest rates, borrowing -- one of the main ways companies raise money -- becomes more expensive, and businesses tend to do less of it, leading to reduced investments and lower future earnings. 

Knowing this, investors are less likely to invest in stocks, especially those speculative growth stocks with high valuation metrics that aren't consistently profitable. That description fits Shopify to a T. Its net loss in the second quarter came in at $1.20 billion, compared to the net income of $0.88 billion reported during the year-ago period.

The company's current forward price-to-earnings (P/E) ratio is 220.5. Even given the premium growth stocks often enjoy, that seems too high. The S&P 500's forward P/E is just under 17. In that context, Shopify's performance on the market over the past year isn't too surprising, especially when you factor in company-specific issues. Notably, Shopify's revenue growth rates have slowed as well.

Data by YCharts.

Perhaps that isn't a "problem" -- at least not in a vacuum. Shopify benefited from the accelerated switch to e-commerce in the early days of the pandemic, and year-over-year comparisons were always going to be difficult as those tailwinds subsided. Still, when added to the overall challenging macroeconomic environment, that's not what investors want to see. 

Moreover, Shopify will likely continue to struggle, at least for a little while. There will probably be more interest rate increases in the near future. Shopify's stock performed exceptionally well between its initial public offering in May 2015 and the end of last year -- an environment marked by historically low interest rates. Moving forward, it will be harder for the tech giant. 

Are there any reasons to be optimistic?

Solid long-term prospects

There is more context to Shopify's relatively disappointing second-quarter financial results. As already mentioned, the slower top-line growth was partly a product of the company's abnormally strong performance in 2020 and 2021, when people were stuck at home and practically forced to shop online. This activity decreased somewhat once pandemic restrictions eased.

There is also more color to Shopify's red ink on the bottom line. For instance, in the second quarter, much of the tech company's net loss was due to unrealized losses in various equity investments. That includes Shopify's holdings in Affirm Holdings, Inc.(NASDAQ: AFRM) and Global-e Online Ltd. (NASDAQ: GLBE). That's not ideal, but at the very least, it reflects less poorly on Shopify's day-to-day operations.

The company's adjusted net loss during the second quarter -- which ignores the impact of unrealized losses and other items -- came in at $38.5 million, down from an adjusted net profit of $284.6 million in the year-ago period.

Importantly, Shopify's long-term prospects remain strong. There is still plenty of room for e-commerce to grow; as long as it does, merchants will look to open online storefronts. Some analysts see the industry expanding at a compound annual growth rate of 14.7% through 2027. It won't stop there. E-commerce penetration in many developing countries lags what it is in the U.S.

In my view, online shopping will continue growing for decades. Shopify's strength is that it gives merchants all the essential tools they need to run an online store. As a result, the company benefits from high switching costs. Building and customizing an online storefront is hard enough, and attracting loyal customers to it is even more challenging.

But having to restart the entire process from scratch is not something anyone wants to do unless necessary. That's why Shopify's merchants won't want to jump ship. As of last year, Shopify was No. 2 among companies with the highest retail e-commerce market share in the U.S. That, coupled with an estimated $160 billion addressable market and its solid competitive advantages, strongly suggests Shopify can turn things around.

Don't lose perspective 

Will Shopify meet Wall Street's expectations within the next 12 months? Probably not. But more importantly, the company still has solid prospects, especially when you put its recent struggles in context. For those focused on the long game, Shopify is worth holding onto. The company will likely deliver solid returns in the next decade and beyond.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Nasdaq Composite Index (NASDAQ: .IXIC) is cranking on August 10, 2022, up 2.4% at 12:53 p.m. Today's big gains come as earnings season continues and following the release of the latest inflation data from the U.S. Department of Labor this morning. According to the data, the Consumer Price Index, or CPI, rose 8.5% in July. For context, that's still near the highest levels of the past four decades, but it's trending very much in the right direction after June's 9.1% set a 41-year high.

Today, investors are betting that slowing inflation is a good signal that a sharp recession is less likely. Energy and food prices are moderating, and many companies are still reporting upbeat quarterly results and expectations. Upstart (NASDAQ: UPST) and Affirm Holdings (NASDAQ: AFRM) are at the leading edge of that consumer risk, and their highly volatile stocks are up big today on the optimistic reading of the inflation data.

Today's noteworthy postearnings gainers include The Trade Desk (NASDAQ: TTD), with shares up more than 36% at one point. Investors are also betting on better prospects for renewable and low-carbon energy companies. Shoals Technologies (NASDAQ: SHLS) and Plug Power (NASDAQ: PLUG) are two of those up big today.

When near-record inflation is a "good" thing

While the CPI is still very high, today's interpretation of the data was generally positive. We have seen energy and food prices begin to come down, and some areas of the global supply chain crisis are improving, too. Semiconductor companies, in particular, are reporting that the cycle in that industry is turning from too much demand to too much supply in certain product categories. While that's not a positive for shareholders in the short term, it's positive for the broader economy that the supply shortfall that's kept many products off the shelves and prices very high might be starting to ease.

Investors see this as very positive for Upstart, the AI-driven consumer lending platform, and for buy now, pay later specialist Affirm Holdings, with their shares up 16% and 13%, respectively, at this writing. Both companies live at the leading edge of consumer credit risk. By and large, the bulk of their lending products are unsecured consumer debt (though Upstart is diversifying into auto lending), which is the first kind of credit to see increased rates of default in weak economic periods. However, today's gains could prove temporary, as both saw their stocks fall sharply earlier this week on earnings and economic speculation.

The Trade Desk's second quarter was, by almost every measure, exceedingly strong. It reported 35% revenue growth, continued to retain more than 95% of its customers, and more than doubled its operating cash flows. If there's one not-great number, it's stock-based compensation, which almost tripled year over year and was the primary factor in The Trade Desk reporting a GAAP loss.

What happens next? Plenty of volatility as investors try to telegraph what happens in the near term. Investors in both companies should be prepared for that and acknowledge that their risks will be amplified if consumers continue to get squeezed. The companies' long-term prospects, however, are tied to their ability to keep disrupting the traditional credit card and consumer lending industries.

The Trade Desk shakes off earnings woes for adtech

The Trade Desk's results were a breath of fresh air for the adtech industry. In recent weeks, many of the companies that are deeply involved in the growing digital ad industry have reported somewhat mixed results. The mature giants like Facebook parent Meta Platforms (NASDAQ: META) have reported strong ad volume but falling ad rates, as marketers have cut ad spending.

Investors seem happy to trade a portion of equity to co-founder and CEO Jeff Green, however, as part of his compensation. Shares are up a massive 36% at this writing.

Cleantech stocks cleaning up today -- can they keep it up?

The stocks of a number of clean energy companies are up big today. Shares of Shoals Technologies, which makes electrical wiring for utility-scale solar plants, are up 14% today, joining hydrogen companies Plug Power and Bloom Energy (NYSE: BE). The latter's shares are up more than 15% after Bloom reported expectations-beating earnings and said it expects to be cash flow positive for the full year.

Plug Power reported on August 9. Unlike Bloom, its results came up short of expectations. However, analysts continued to have bullish outlooks, raising their price targets on the company, partly due to the expected tailwinds of the recently passed landmark federal climate legislation.

Looking beyond near-term price targets and potential tailwinds from the new climate law, investors should focus on the financials. Plug Power has a very long record of cash burn (it has never had a positive-cash-flow year in its multidecade history), while Shoals and Bloom have demonstrated positive cash flows in the past and are trending in positive directions.

Optimistic thinking is nice, but as investors, we mustn't forget that long-term wealth comes from a healthy -- growing -- bottom line.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Apple (NASDAQ: AAPL) gets the world's attention when it holds its developers' conferences, as consumers, suppliers, and tech professionals all look forward to the latest innovations from the iPhone maker. Yet while many pay the closest attention to the latest product releases, the announcement on Monday of its Apple Pay Later service sent shockwaves across the fintech space.

Buy now, pay later (BNPL) specialists like Affirm Holdings (NASDAQ: AFRM) were the most obvious targets of Apple's move. Indeed, Affirm's stock fell 5.5% on Monday, with much of the decline coming after the conference announcement. However, Apple Pay Later further cemented a key partnership between the technology pioneer and two leading players in the financial industry, and that could pay big benefits for them for years to come.

Apple goes its own way

Apple announced that its new iOS 16 operating system software includes a new feature within the Apple Wallet. Apple Pay Later will provide the same flexibility that customers have come to expect from BNPL services from competing providers.

In particular, with Apple Pay Later, users in the U.S. will be able to take purchases for which they use the Apple Pay function in Wallet and split them into four equal payments spread out over six weeks. Apple will charge 0% interest and won't add any fees of its own.

The drop in Affirm's stock price in response suggests that, at least some investors had hoped that Apple would choose to go the partnership route rather than releasing its own BNPL program. The announcement last summer that Amazon.com had chosen Affirm as its BNPL partner showed just how valuable the e-commerce behemoth believed the rising fintech's offering was. With Affirm users showing a demographic skew toward younger shoppers, investors hoped that Apple would come to the same conclusion that Amazon did and work with Affirm, rather than against it.

How Mastercard and Goldman Sachs could win from Apple Pay Later

Despite the hopes of Affirm shareholders, Apple Pay Later wasn't a big surprise. Nearly a year ago, reports surfaced that Apple was working with key partners to develop its own BNPL service. And now that the news is out, it's another victory for those partners: Mastercard (NYSE: MA) and Goldman Sachs (NYSE: GS).

Mastercard stands to benefit from Apple Pay Later because Apple is using Mastercard's payment network to handle installment payments under the program. Mastercard has fought hard to distinguish itself from its larger archrival, Visa. Cementing a relationship that started when the iPhone maker chose Mastercard for its Apple Card will further boost the No. 2 payment-network provider's reputation among consumers.

Meanwhile, although the release didn't specifically mention Goldman, the Wall Street banking giant is likely to be the lender behind the short-term installment loans within the BNPL program. Goldman is the issuing bank for Apple Card, and its decision to work more closely with Apple came at the same time that it chose to move aggressively into the consumer-banking side of the business with its Marcus online bank.

Will Apple Pay Later be a hit?

Both Goldman and Mastercard are large enough that the Apple Pay Later news didn't have any discernible impact on their stock prices. To reap the financial rewards of Goldman's and Mastercard's expanded partnership with Apple, Apple Pay Later will have to prove it can compete effectively with Affirm and its disruptive BNPL peers.

One key to Apple Pay Later's success will be in its execution. Looking closely at the release, users will be able to apply for Apple Pay Later when they use Apple Pay to check out, but that's no guarantee of acceptance. How strict Goldman proves to be with its underwriting could be a major factor in how consumers view Apple Pay Later and how profitable it will be for both the bank and Mastercard, as payment-network provider.

Moreover, Apple Pay Later is relatively inflexible, only offering a single repayment option. Many shoppers like other BNPL providers' wider array of schedules for making payments, although consumer advocates have criticized the higher costs in fees and interest charges that some of them involve.

Nevertheless, being associated with Apple's ecosystem could have long-term benefits for Mastercard and Goldman Sachs. The strength of the two financial giants' underlying businesses makes Apple Pay Later an added bonus opportunity to boost their growth.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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What happened

Shares of several consumer fintech companies fell today after the popular artificial intelligence lender Upstart (NASDAQ: UPST) disappointed the market with its latest earnings results and guidance.

Shares of buy now, pay later company Affirm (NASDAQ: AFRM) were trading nearly 16% lower as of 12:09 p.m. ET today, shares of the one-stop financial services company SoFi (NASDAQ: SOFI) were trading nearly 18.5% lower, and shares of the digital marketplace bank LendingClub (NYSE: LC) were trading about 9% lower.

So what

Last night, Upstart reported adjusted diluted earnings per share of $0.61 on total revenue of $310 million for the first quarter of 2021, both numbers that beat analyst estimates. However, Upstart also lowered its revenue guidance for the full year from $1.4 billion to $1.25 billion. The stock plummeted and as of this writing had fallen roughly 60%.

While the company increased its contribution margin guidance, it also lowered its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance for the full year. Additionally, Upstart earlier this year guided for $1.5 billion of auto loan originations in 2022, but now it seems that goal may be in question as well.

Over the past few months, the Federal Reserve has raised its benchmark overnight lending rate aggressively, by 0.75% in two meetings, sparking concerns among investors that it might tip the economy into a recession. Upstart is currently in the business of originating online personal and auto loans to a range of borrowers across the credit spectrum. These kinds of debt are often some of the first that consumers will stop paying down when they start to face financial pressure. Already, Upstart has seen default trends normalize as help from stimulus has gone away. 

With all these concerns, Upstart's partners that actually fund and invest in Upstart loans have asked for higher returns, as there is now a higher likelihood that consumers will default in the future and as investors are facing their own higher funding costs. This has resulted in Upstart having to raise pricing on its platform for borrowers. Higher interest rates may also push out of qualification some borrowers who qualified for certain loans based on certain investors' risk appetite. All of this will result in lower loan transaction volume and lower conversion rates, which is how Upstart generates the large majority of its revenue.

Upstart also had to hold a small portion of loans that it normally sells to investors on its balance sheet in the first quarter, which spooked investors. That's because some of Upstart's investors, particularly those in the capital markets, are still determining what kind of risk they want to take on, which has resulted in a lack of funding for Upstart loans. Upstart's management has said this is temporary, but the company is supposed to act as a marketplace, and if funding in the capital markets dries up, that would be extremely problematic for future growth.

Now what

Affirm, SoFi, and LendingClub seem to be taking the hit because the market is clumping all these consumer fintech lenders together with Upstart. In Affirm's case, I can understand the concerns because the company is also somewhat beholden to the capital markets to fund and take on a large portion of its loans.

But I don't think LendingClub and SoFi deserve to be clumped in here because both now have bank charters. Bank charters give them access to cheaper deposits, which they can use to fund a large portion of their loans, making them much less reliant on the capital markets.

Additionally, while Upstart originates loans to borrowers all over the credit spectrum, LendingClub and SoFi lend more heavily to prime borrowers and above, who were less affected by stimulus funds and are in much better financial shape. SoFi will report earnings results for the first quarter of 2022 after the market closes today.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Investors endured another round of selling in the stock market, piling on after last week's turbulent performance. For six months now, major market benchmarks like the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) have consistently lost ground. The S&P is inching closer toward joining the Nasdaq in bear market territory with a 17% drop from its highs at the beginning of the year.

Data source: Yahoo! Finance.

One area that has been hit especially hard lately is the e-commerce industry. Companies thrived in 2020 and 2021 as consumers had to resort to internet-based shopping during pandemic-related lockdowns. Now, though, reopening trade has many investors feeling like the heyday of these stocks is over. Moreover, with geopolitical pressures emerging onto the global scene, some believe that the factors that made e-commerce as lucrative as it was could be fading. Below, we'll look at some of the stocks seeing big losses and assess their longer-term prospects.

Big losses in internet retail

Today's session had some big losses, but many of the bottom performers were in the global e-commerce arena. Consider the following:

• Latin America's MercadoLibre (NASDAQ: MELI) fell 17%.
• In Singapore, Sea Limited (NYSE: SE) was down more than 15%.
• E-commerce supporter and buy now/pay later specialist Affirm Holdings (NASDAQ: AFRM) gave up more than 17% of its value.
• Canadian e-commerce platform provider Shopify (NYSE: SHOP) fell 10%.
• Online auto specialist Carvana (NYSE: CVNA) was down around 16.5% on the day.
• South Korea's Coupang (NYSE: CPNG) was one of the biggest losers, falling more than 22%.

As you can see, the selling was relatively indiscriminate and worldwide in scope. Even giants in the industry saw sizable declines, with Amazon.com (NASDAQ: AMZN) falling 5% and China's Alibaba Group (NYSE: BABA) posting a nearly 6% drop.

Most of these declines merely added to much more extensive drops over the past several months. The six stocks in the bullet points above are all down between 60% and 90% from their best levels over the past year, and even Amazon and Alibaba have fallen 40% to 60%.

The long-term picture for e-commerce

E-commerce has made itself an integral part of the overall retail industry, and its long-term prospects remain favorable. Industry watchers see e-commerce continuing to gain market share from brick-and-mortar stores, with one analyst seeing $17.5 trillion in global digital commerce taking place by 2030, up from just over $4.2 trillion in 2020.

But just because there's more e-commerce activity doesn't automatically mean that investing in the space will be equally lucrative. Greater competition could drive margins down, while higher logistics costs could weigh on profitability as well. However, if retailers try to take back some of the features that have made e-commerce popular, such as fast shipping at little or no cost, it could set back prospects for internet retail growth.

The wild card in e-commerce is the extent to which the industry has relied on functional global supply chains. If the free flow of goods comes to a halt, it will have ramifications for the entire retail industry, but e-commerce in particular could see its anticipated higher growth rates come to a standstill.

Lastly, investors need to remember that despite their recent drops, most of these stocks are still sporting solid gains. Amazon has doubled since late 2017, while MercadoLibre and Shopify have tripled and Sea is up nearly 300%. Those huge swings serve as a reminder that the price of extremely high returns from high-growth stocks can be massive volatility, making it essential to find the best stocks earlier rather than later.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Zip shares are currently down a nasty 6.2% at just $2.88 each That's a lot closer to the company's 52-week low of $2.78 than its 52-week high of $14.53 a share. Today's move puts this buy now, pay later (BNPL) company's 2022 performance at a sobering -33.5%.

So what might be behind Zip's share price malaise this Friday?

Well, it's possible Zip shares have just been caught up in the selloff that has gripped the ASX tech shares sector. We've already covered Appen Ltd's (ASX: APX) nasty fall earlier today. So perhaps Zip is just experiencing a similar fate.

But there is some other relevant news out today that might be affecting investor's appetites for Zip shares too.

Last night (our time), the US BNPL company Affirm Holdings Inc (NASDAQ: AFRM) reported its quarterly results for the December quarter. As my Fool colleague Brooke covered this morning, Affirm was forced to release the results early after the company mistakenly gave some of it away on Twitter.

Buy now, pay later? Investors are paying now, but not buying Zip shares…

Affirm reported a 77% increase in revenue over the quarter. But it also reported a net loss of US$159.7 million. Investors evidently weren't too impressed. The Affirm share price promptly crashed 21.4% over last night's US trading session.

So obviously some of this sentiment alone might have flown into the zip share price. Block Inc CDI (ASX: SQ2), the new owner of fellow BNPL provider Afterpay, has also lost a good chunk of change today.

But another warning came out of Affirmt that might have spooked investors even further.

According to reporting in the Australian Financial Review (AFR) today, Michael Linford, chief financial officer (CFO) at Affirm, warned investors that rising interest rates pose a massive risk to Affirm's business. He said that a "1 per cent lift in rates 'beyond current expectations' would result in 20 basis point impact to revenue less transaction costs as a percentage of gross merchant value in FY2023".

Investors in both the US and here in Australia are already arguably on edge over inflation and interest rate rises. So that was probably not what investors wanted to hear. Worryingly for Zip, it's possible that the same factors could affect Zip's own business in a similar fashion.

So that might be why ASX investors are punishing Zip shares today so far.

At the current Zip share price, this ASX BNPL share has a market capitalisation of $1.71 billion. 

The post Do Affirm's warnings raise red flags for the Zip (ASX:Z1P) share price? appeared first on The Motley Fool Australia.

Astonishingly, Affirm was forced to release its earnings for the December quarter early after a human error saw it post some of its results to Twitter Inc (NYSE: TWTR).

The Affirm share price plunged to close at $58.68 – 21.42% lower than its previous close – during yesterday's session in the United States (US).

That's despite the stock trading up to 11% higher prior to the release of its quarterly results.

The international BNPL giant's dip has likely put ASX BNPL shares on watch today. Let's take a closer look.

Affirm share price tumbles on early release of quarterly earnings

ASX BNPL shares like Zip Co Ltd (ASX: Z1P), Sezzle Inc (ASX: SZL), and Block Inc CDI (ASX: SQ2) – now the home of Afterpay – will be watched closely when the market opens this morning after Affirms' dramatic and disappointing quarterly results.

Affirm – with its market capitalisation of around US$16 billion – reported a US$159.7 million loss for the 3 months ended 31 December.

That meant its earnings per share (EPS) for the period equated to a 57 US cent loss.

According to my Foolish colleagues in the US, analysts had been predicting EPS would come to a 34 US cent loss.

It was also a far greater impact than the US$26.6 million loss it recorded in the same quarter of the previous year.

However, Affirm saw a 77% increase in revenue over the December quarter, reaching US$361 million. Its gross merchandise volume also grew 115% to US$4.5 billion.

Finally, the number of active customers using Affirm increased 150% on the prior comparable quarter and 29% quarter-on-quarter.

Affirm conceded to Twitter the previously tweeted results were a result of "human error".

What could be in store for ASX BNPL shares on Friday?

Plenty of eyes will be on the Zip share price on Friday morning, as well as those of Sezzle and Block.

Particularly as the Affirm share price's slump helped drive the tech-heavy Nasdaq Index down 2.1% in Thursday's session.

The index's falls generally weigh on the S&P/ASX 200 Info Tech Index (ASX: XIJ) and the S&P/ASX All Technology Index (ASX: XTX).  

The share price of US-listed Block Inc (NYSE: SQ) also slumped overnight, ending 3.4% lower.

Meanwhile, shares in payment service providers Paypal Holdings Inc (NASDAQ: PYPL) and Visa Inc (NYSE: V), which each offer a BNPL service, ­fell 3% and 2% respectively.

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The United States-based Consumer Financial Protection Bureau (CFPB) issued orders to 5 BNPL companies.

The bureau is undertaking the probe to see if BNPL players need to be better regulated and if US consumers are adequately protected.

At the time of writing, the Afterpay share price has plummeted 7.44% to $82.84, while Zip shares are trading 6.97% lower at $4.14.

ASX BNPL shares caught up in consumer probe

The 5 companies targeted in the probe include Afterpay, Zip, Affirm Holdings Inc (NASDAQ: AFRM), Paypal Holdings Inc (NASDAQ: PYPL) and Swedish fintech Klarna.

US investors responded swiftly to the news with Affirm shares crashing by 10.6%, while the Paypay share price lost 1%. It is likely that Paypay is better insulated as BNPL is not its main business.

In its release, the CFPB highlighted concerns over "accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology".

CFPB director Rohit Chopra said:

Buy now, pay later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately too.

We have ordered Affirm, Afterpay, Klarna, PayPal, and Zip to submit information so that we can report to the public about industry practices and risks.

Areas of concern

The watchdog is specifically concerned about three areas, including accumulation of debt. Unlike layaway (called layby here) that are typically used for the occasional big purchases, it believes BNPL can quickly become a regulator habit for consumers making smaller but more frequent purchases.

CFPB is concerned that BNPL users can quickly lose track of payments and their growing debt. Consumers can be hit with big fees for missing payments.

Further, as BNPL "credit" is relatively easily given, consumers could end up spending more than they intended.

Are better regulations needed internationally?

The other issue of concern is regulatory arbitrage where BNPL companies may not be following consumer protection laws. For instance, some BNPL products do not provide certain regulatory disclosures.

Also, BNPL applicants do not get the same protections compared to if they were applying for a credit card, even though the application process may look similar.

Afterpay and Zip shares facing more volatility

Finally, there's the issue of data harvesting. BNPL operators have access to valuable customer data, such as payment histories.

CFPB wants to understand how BNPL companies are using the data. Some companies may be using it for behavioural targeting and data monetisation. This is similar to criticisms levelled against Amazon.com, Inc (NASDAQ: AMZN).

Having said that, the US probe shouldn't come as too big a surprise to investors. Afterpay, Zip and other BNPL players in Australia have also been subject to similar investigations.

CFPB said it was working with its international partners in Australia, Sweden, Germany and the United Kingdom.

The post ASX BNPL shares tumble today amid US probe appeared first on The Motley Fool Australia.

Since joining the public markets in January this year the instalment payment provider has traded between US$46.50 and US$176.65. Yet, the erratic swings in the company's share price have only amounted to a 14% gain for the year so far.

Not all too exciting when you consider an investment in the S&P/ASX 200 Index (ASX: XJO) delivered a 9.5% return over the same period without having your heart in your throat.

Nonetheless, let's look at how Afterpay compares to Affirm after its share price rise last night.

Survival of the fastest growing

When it comes to the BNPL industry there aren't too many companies worried about profitability. Instead, it's all about growing the top line as fast as possible, taking market share from competitors in the process. For this reason, investors will seldom fret over the bottom line.

So, let's lift the lid on Affirm and ASX-listed Afterpay's last annual growth metrics.

Firstly, the gross merchandise volume (GMV) processed by BNPL companies is an important indicator of market penetration. In FY21, Affirm delivered a GMV of US$8.3 billion (A$11.57 billion), compared to Afterpay's A$22.4 billion worth of underlying sales during the financial period.

Similarly, Afterpay claimed the trophy when it comes to active customers at the end of FY21. The ASX-listed company reported 16 million shoppers actively using its platform. Meanwhile, Affirm reached 7.1 million active customers using its product. But, how does this translate into real revenue for the companies?

Well, in FY21 Affirm recorded US$870.5 million (A$1,213 million) in revenue — representing an increase of 71% on the prior corresponding period. In comparison, ASX-listed Afterpay notched up A$836 million, which was an increase of 75% compared to the previous year.

Though these figures might seem relatively inconspicuous at first, the interesting aspect is how Affirm is driving roughly 45% more revenue from nearly half as much in underlying sales.

Looking a little closer at Affirm's financial statements, it can be seen that the BNPL company made US$326.4 million in interest income in FY21. Whereas, Afterpay does not charge interest on any of its payments. Affirm offers 6 monthly payments and 12 monthly payments which both come with an annualised 15% interest rate.

How does Affirm's share price compare to Afterpay on the ASX?

Compared to Afterpay's abysmal ~25% share price fall, Affirm's share price has provided a positive return for investors so far this year (as shown below).

Since being announced in August, Afterpay's acquisition by Block Inc (NYSE: SQ) (formerly Square) has been jumping through all the hurdles that come with such a deal. For the ASX-listed company, it has meant that its share price has been tied to Block's due to the all-scrip deal.

In turn, Afterpay's ASX-quoted market capitalisation is now ~A$26.4 billion. In comparison, based on Affirm's current share price, the US-listed company commands a market cap of A$43.5 million.

The post Affirm share price rallies overnight, but how does it compare to Afterpay (ASX:APT)? appeared first on The Motley Fool Australia.

Zip shares managed to close 5.19% higher at $7.10 on Tuesday, propping up its weekly performance to a gain of 3.65%.

What happened to the Zip share price?

Zip delivered an upbeat first-quarter update on Monday, delivering record figures across most key operating metrics. Some highlights for the quarter ended 30 September include:

• Revenue rose 89% on the prior corresponding period to a record $136.8 million
• Transaction volume jumped 101% to a record $1.9 billion
• Transaction numbers surged 177% to a record 14.7 million
• Active customers increased 82% to 8.0 million
• Active merchants increased 71% to 55,200

Zip's strong growth was headlined by its US performance where revenues grew 182% to $67.1 million. This was backed by a 204% increase in transaction volumes to $955.4 million and a 165% increase in transactions to 5.3 million.

The company continued to execute on its international expansion strategy with a strategic investment in ZestMoney for India, organically going live in Mexico, launching in Canada, and completing its Middle East Spotii acquisition.

Despite the seemingly positive announcement, the Zip share price finished Monday's session down 1.75% to $6.73.

Zip bounces back on Tuesday

The Zip share price rebounded strongly on Tuesday, closing 5.19% higher at $7.10.

This move was on the back of above average volumes, with 9.28 million shares trading hands compared to its 10-day average of 6.12 million.

The ASX-listed BNPL sector has remained largely uneventful in the past few months, with most players trading sideways.

That said, US-listed rival Affirm Inc (NASDAQ: AFRM) managed to surge 7.17% on Monday night to a fresh all-time high of US$157.25.

Affirm has outperformed most ASX-listed BNPL players, rallying 62% year-to-date and up 32% in October alone.

The post Zip (ASX:Z1P) share price rallies 5% on Tuesday appeared first on The Motley Fool Australia.

Affirm Holdings' (NASDAQ: AFRM) stock hit an all-time high after it announced a partnership with Amazon (NASDAQ: AMZN) on Aug. 27. Amazon is integrating Affirm's "buy now, pay later" (BNPL) network into its marketplace. The new payment option will enable its shoppers to split purchases of $50 or more into smaller monthly payments. Amazon has already tested out Affirm's service with select customers and plans to broaden its reach over the next few months.

That's good news for Affirm, which already serves big customers like Walmart and Peloton, and it's another vote of confidence for the BNPL market which has been growing in the shadow of traditional credit card companies. Let's see why Amazon partnered with Affirm, how the deal could benefit both companies, and whether or not Affirm's recent rally is worth chasing.

Cutting credit card companies out of the loop

Every time a shopper uses a credit card, the retailer pays a "swipe fee" of about 1% to 3%. The credit card company keeps most of the fee while the issuing bank and payment processor split the rest.

To avoid that fee, some retailers refuse to accept credit card payments. Others only accept credit cards with lower swipe fees while larger retailers often issue their own private label payment cards.

However, processing payments without credit card networks can be a difficult task. That's why most retailers that issue private label cards work with automated clearing houses which charge much lower fees than credit card companies but take a longer time to process payments.

That's where digital payment companies and BNPL services come in. Digital payment companies like PayPal (NASDAQ: PYPL) and Square (NYSE: SQ) charge merchants flat fees for processing all their card-based payments, regardless of the brand or issuing bank, as a simpler solution.

PayPal and Afterpay (OTC: AFTP.F) (which Square plans to acquire) also provide BNPL options that enable shoppers to split their payments into interest-free payments without using a credit card. That's why it makes sense for Amazon, which relies heavily on credit card payments and didn't offer any BNPL options yet, to team up with Affirm.

Is this a win-win deal for Amazon and Affirm?

Bank of America expects the market for BNPL apps to expand 10-15 times by 2025, with more retailers using the services to avoid swipe fees and more shoppers using them to avoid high interest fees.

Partnering with Affirm could help Amazon reduce the operating expenses at its retail business, which operates at much lower margins than its cloud business, and attract more shoppers. Amazon's decentralized rival Shopify also recently partnered with Affirm to roll out BNPL services.

Affirm has already grown like a weed since its founding in 2012. Its revenue rose 93% to $509.5 million in fiscal 2020, which ended last June, and is expected to grow 64% to $834.5 million in fiscal 2021 when it posts its full-year earnings report on Sept. 9.

Affirm ended the third quarter of 2021 with 5.4 million active consumers, up 60% from a year ago. Its transactions per active customer rose 10% to 2.3. In addition, the number of active merchants more than doubled to nearly 12,000.

Analysts expect Affirm's revenue to rise 38% to $1.15 billion next year, but those estimates haven't factored in its partnership with Amazon yet. Amazon serves more than 300 million active customers worldwide, so Affirm's revenue could soar as Amazon rolls out the feature for more shoppers.

However, Amazon and Affirm didn't disclose if shoppers using Affirm's BNPL service would pay any interest fees. PayPal's "Pay in 4" and Afterpay both offer four interest-free payments to all consumers, but Affirm's interest fees vary based on the retailer and the consumer's credit score.

If Affirm waived its interest fees to work with Amazon, it might be sacrificing its margins to grow its market share and boost its brand recognition.

Is it the right time to buy Affirm?

Affirm isn't profitable yet and its stock was already richly valued at over 20 times this year's sales prior to its deal with Amazon. As of this writing, the stock trades at nearly 30 times this year's sales.

Affirm's high price-to-sales ratio might seem justified by its growth potential but investors should remember it's not the only BNPL service in town. It's still a nascent market and BNPL services integrated into major digital payment platforms like PayPal and Square could threaten Affirm's stand-alone business model, which relies heavily on retail partnerships.

I personally prefer sticking with diversified fintech players like PayPal and Square to gain some exposure to the expanding BNPL market. However, investors with a bigger appetite for risk might still consider buying Affirm as a "pure play" on this high-growth niche in digital payments. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why is everyone talking about Affirm stock? appeared first on The Motley Fool Australia.

What happened

Shares of Amazon.com (NASDAQ: AMZN) are up a modest 2.4% as of 1:30 p.m. EDT on Monday -- which may not sound like much, but on a $1.7 trillion stock, it equates to an additional $40.8 billion in market capitalization.

So what

Why are Amazon shares up so much?

To find out, let's go back in time to Friday afternoon, when buy now, pay later (BNPL) stock Affirm Holdings (NASDAQ: AFRM) announced that Amazon will begin allowing customers to choose its service as a payment option during checkout.

Now, this is obviously bigger news for Affirm than for Amazon. The former's stock is up 43.5% on the news, gaining 20 times as much as Amazon's shares are. But this is also an incremental positive for Amazon itself. It will be able to offer customers who spend $50 or more an alternative to paying up front in cash, buying with a credit card (which they might not have or might not want to use), or paying interest on their purchases (shorter-term Affirm payment options don't charge interest).  

Instead, they can simply pay for larger purchases through an installment plan with Affirm.

Now what

On the one hand, this new payment option may increase spending at Amazon, which would be good news for the company. On the other hand, you have to imagine there will be some cannibalization of purchases through Amazon's Prime Rewards, Prime Store, and Prime Secured credit cards. And that would imply that Amazon will be giving up at least some of the revenue that it gets from its credit card partners in exchange for making a little more by (hopefully) scoring more sales with Affirm.  

Whether the latter outweighs the former will determine if this is as good news for Amazon as it's already turned out to be for Affirm. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why Amazon stock rose on Monday appeared first on The Motley Fool Australia.

The "buy now, pay later" (BNPL) craze hit fever pitch this week with payments giant Square (NYSE: SQ) making a $29 billion play for the global leader in the space, Afterpay. The company's innovative twist on microlending is incredibly popular with young shoppers, making it prime real estate for companies that want to capture a slice of the future. 

The deal shines a light on other potential opportunities in the industry. E-commerce giant Shopify (NYSE: SHOP) has been working with BNPL provider Affirm Holdings (NASDAQ: AFRM) for the last year, and it owns 7.6% of the company's stock. They recently took their partnership to the next level after Shopify integrated Affirm's technology into its online merchant checkout process, allowing customers to directly finance their purchases. 

Let's consider three reasons for Shopify to take Affirm fully under its wing.

1. Stronger together

Over 5.4 million consumers are actively using Affirm across 12,000 integrated merchants. When shoppers check out with Affirm, their purchase is financed at an annual percentage rate of 0% to 30% depending on their credit, with the option to repay the money in three, six, or 12 months. 

Affirm's customer base is a drop in the bucket when you consider Shopify powers an estimated 1.75 million online stores, which are the primary focus of the partnership between the two companies. 

But focusing on the merchant side might be too one-dimensional. Affirm recently announced it will be launching the Affirm Card, a consumer-focused product that will allow shoppers to take advantage of BNPL anywhere they wish. It separates the Affirm experience from the shackles of its merchant system, and sets consumers free to take advantage of the same benefits at stores more suited to their needs. 

Shopify currently has 118 million registered users across its Shop virtual assistant platform and Shop Pay payments product, which is a substantial pool of consumers who might be enticed by the offer of a new-age replacement for their credit card. Square is already planning key Afterpay integrations with both its Seller platform (merchants) and its 70 million CashApp-using consumers, and this is a move Shopify could learn from.

2. Buy now, pay later drives sales

It probably comes as no surprise that financing consumer purchases with no fees and little interest encourages people to spend. But it might surprise you just how much.

Shopify is in the process of pitching its BNPL solution (powered by Affirm) to its merchants, and it has provided a series of selling points. The company claims it will increase conversion by 50%, reduce cart abandonment by 28%, and enable larger cart sizes because consumers have the flexibility to buy more.

Half of Affirm's customers are either millennials or from Gen Z, and the company notes that 79% of this cohort shop using a smartphone. Its BNPL product is driving engagement, with 64% of transactions in fiscal 2020 made by repeat customers who spend $2,200 annually on average.

If Shopify absorbed Affirm, it would have the opportunity to unleash this across its ecosystem of over 100 million users, providing incredible benefits to its merchant base. 

3. They're already partners

In July 2020, Affirm announced that it would partner with Shopify to power its new Shop Pay Installments feature, an attempt by Shopify to introduce BNPL to its merchants and customers. 

Affirm was still a private company at the time, and as part of the deal it handed over warrants that entitled Shopify to purchase up to 20.3 million shares in the company -- equivalent to about 7.6% -- for just $0.01 each. Affirm proceeded to list on the stock exchange in January this year, and Shopify maintains its stake worth about $1.3 billion today.

Since the two companies have been working on product integrations for the last 12 months, the merger into one company could be almost seamless. Shopify's merchants are already familiar with the new features powered by Affirm, so if Shopify views BNPL as a big part of its future, then absorbing Affirm feels like the smart way to go.

Shopify has a market capitalization of over $190 billion compared to Affirm's $17 billion, so an all-stock deal similar to the way Square acquired Afterpay would result in minimal dilution for shareholders, especially considering it already owns 7.6%. Shopify also has $7.7 billion in cash on its balance sheet, and although using it wouldn't be ideal, it puts some options on the table (like a part-cash, part-debt deal, or a part-cash, part-stock agreement). 

But the most important thing is that BNPL represents an opportunity to capture highly engaged young shoppers, and the company's merchants and shareholders alike stand to benefit greatly from that. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 3 reasons Shopify should buy Affirm appeared first on The Motley Fool Australia.

What happened

So what

Now what

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why shares of Affirm Holdings were down over 16% in July appeared first on The Motley Fool Australia.

What happened

AFRM data by YCharts

So what

Now what

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Here's why Affirm Holdings was up big on Monday appeared first on The Motley Fool Australia.

Two weeks on from the Apple announcement

It's been a little over two weeks since the headlines that Apple was developing its own BNPL service.

However, the selling pressure continues to linger, with the Afterpay share price tumbling 3.60% to $99 on Wednesday.

The Wednesday decline was off the back of above average trading volume, with almost 1.5 million shares changing hands compared to Afterpay's 10-day average of approximately 1.05 million shares.

What's driving the Afterpay share price on Thursday

Afterpay shares might be taking Wall Street's lead after the Nasdaq Composite posted a solid 0.70% gain overnight.

The tech-heavy Nasdaq managed to run higher despite the Dow Jones Industrial Average and S&P 500 edging 0.36% and 0.02% lower respectively.

Encouraging, Afterpay's major US competitor, Affirm Holdings Inc (NASDAQ: AFRM) managed to post a 2.82% gain to US$61.18 as well.

The broader BNPL sector is also bouncing higher on Thursday, with the large cap players taking charge.

The Zip Co Ltd (ASX: Z1P) share price is up 5.49% to $6.91.

While Sezzle Inc (ASX: SZL) is also posting a 2.39% gain to $8.15.

Smaller players including Openpay Group Ltd (ASX: OPY) and Laybuy Holdings Ltd (ASX: LBY) are trading a respective 6.22% and 1.14% higher.

Despite a small victory today, the Afterpay share price is still down 4.05% this week and down 13.96% year-to-date.

The post Why the Afterpay (ASX:APT) share price is in the green today appeared first on The Motley Fool Australia.

The negative news saw a sharp 13.45% selloff in Afterpay shares last week to $103.79.

But Afterpay managed to withstand the broad selloff yesterday, where the S&P/ASX 200 Index (ASX: XJO) tumbled 0.85%.

Similarly, the Afterpay share price has added another 1.55% on Tuesday to $106.53, despite the ASX 200 sliding another 0.37% at the time of writing.

Afterpay rallies despite sharp selloff overnight

The US market tumbled in an aggressive fashion overnight with the Dow Jones Industrial Average Index (DJX: .DJI) tumbling 2.09%, the S&P 500 Index (SP: .INX) falling1.59% and the Nasdaq Composite (NASDAQ: .IXIC) down 1.06%.

According to CNBC, the sharp selloff was driven by increasing concerns that the resurgence in COVID-19 cases could slow down global economic growth.

COVID-19 cases in the United States have slowly crept up to a seven-day average of 31,745 as of 18 July compared to 11,623 a month ago.

Morgan Stanley chief US equity strategist Mike Wilson told CNBC, "The market appears ready to take on a more defensive character as we experience a meaningful deceleration in earnings and economic growth."

The Afterpay share price is making a turnaround despite a weak overnight performance from its US-listed rival, Affirm.

Affirm shares were off to a grim start on Monday night, sliding as much as 6.34% to US$54.06.

Encouragingly, the Affirm share price managed to bounce off lows, finishing the session 2.85% lower to US$55.86.

Affirm has struggled in light of a potential Apple BNPL service, with its shares tumbling 14.17% last week.

What else might be driving the Afterpay share price?

This morning, Afterpay revealed that it will begin rolling out its new money and lifestyle app, Money by Afterpay.

The new service will begin with a staff pilot at the end of July and plans to launch to market in October.

The new service will offer classic banking features including multiple savings accounts with an interest rate of 1% per annum, a physical debit card and instant payments.

The post Afterpay (ASX:APT) share price is higher despite the sharp ASX 200 selloff appeared first on The Motley Fool Australia.

Data source: Yahoo! Finance.

Apple takes on Affirm

Get ready for more fighting

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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