Sezzle share price plunges 35 per cent as $491m Zip merger abandoned

The full extent of the dramatic drop in value of the buy now, pay later sector has been revealed as a $491 million merger has fallen through.

The staggering decline of the buy now, pay later sector in Australia has been laid bare as another potential merger is abandoned.

The combined market capitalisation for the BNPL sector in Australia — including Afterpay — has dropped to just $1 billion today, from a peak of $47 billion

McLean Roche consultancy payments analyst Grant Halverson said the worst was yet to come.

“Australia has had just an enormous bubble (in this sector),” Mr Halverson told The Australian.

“It’s absolutely bizarre that the Australian Securities Exchange has 12 listed BNPL stocks … And it is all built on this notion that you can borrow money forever and not pay for it. As long as your shareholders are prepared to burn cash.

“I think in 12 months’ time, you’ll have two or three surviving; the rest will all be gone. They’ll either go broke or they’ll be bought very cheaply.”

It comes as BNPL companies Zip and Sezzle confirmed on Tuesday their planned million merger, previously valued at $491 million, would not go ahead. The announcement of the deal’s termination saw Sezzle’s share price plunge 35 per cent, with Zip’s shares bouncing 6 per cent at Tuesday’s close.

The sector has been haemorrhaging money all year ever since these companies revealed they weren’t posting the profits they had in previous financial years.

Many companies in the buy now pay later sector have only managed to stay afloat after partnering with larger entities to bear most of their costs.

Afterpay merged with US-based Block Inc last year. Picture: Supplied

Afterpay, for instance, underwent a $39 billion merger last year with US-based Block Inc, run by Twitter Founder Jack Dorsey.

But the Sezzle/Zip deal is the latest to have fallen over in the past few weeks, after the proposed sale of humm consumer finance to Latitude was also dropped.

Experts have previously predicted potential “carnage” for the buy now pay later sector as providers burn through cash, bad debts balloon and customers retreat from using the service – a model which they say isn’t sustainable.

The sector has been plagued with questions over whether it can be profitable.

Meanwhile the Federal Government has also flagged a potential regulatory crackdown on the sector.

“Let’s have an end to the silly argument about whether BNPL is credit and get on with the next stage of growth for this emerging industry,” Assistant Treasurer and Financial Services Minister Stephen Jones told the Responsible Lending Summit in Sydney.

Some Australians are struggling to afford BNPL services including Afterpay, Zip and humm because inflation is skyrocketing — meaning many of those still using these payment systems can’t pay back their debts.

To top that off, Covid-19 stimulus packages have ended, which provided a brief lifeline for the bad debts these companies were paying down — but no longer.

“BNPL business as a stand-alone means that you are going to attract a large number of people who are incapable of paying their money back, particularly if you don’t have robust credit checks,” investment company East72’s Andrew Brown told the Sydney Morning Herald last month.

— with Alex-Turner Cohen and Sarah Sharples