Afterpay reveals huge lift in losses

The buy now, pay later group made a huge $345.5m loss for the six months ended December, unaudited results released by new US parent Block show.

Buy now, pay later giant Afterpay has revealed significant losses in the first six months of the financial year, unaudited financial accounts released by US parent Block show.

Afterpay’s income jumped from $374.2m to $560.8m in the six months to December 31, but a surge in finance costs and operating expenses saw the net loss rise from $79.2m to $345.5m.

The blowout saw losses after tax lift by 336 per cent as expenses and marketing costs ballooned as it neared the conclusion of the $39bn acquisition by Block.

Afterpay’s results showed its cost of sales swelled, hitting $181.6m, up from $110.34m the year prior.

Marketing costs stood at $237.1m.

The moves by Afterpay to chase new business also saw its loan losses grow, as more risky borrowers were unable to pay debts.

The company marked down $176.7m in losses on bad debts.

However, the results show Afterpay was able to maintain a stable level of debts written off for the year to December 2021, down to $125.2m from $129.4m a year earlier.

Total expected losses from debts were up to $151.1m, from $99.6m last year.

The results also revealed Afterpay closed the year sitting on $2.08bn in receivables from customers as the tail of its sales grew. This compared to $1.45bn the year prior.

The filing also sees Afterpay weighed down by costs imposed by efforts to clear the deck ahead of the completion of Block’s takeover.

Afterpay and Block – at the time named Square and whose chief executive Jack Dorsey is the co-founder of Twitter – in August announced an all-scrip deal by way of a recommended scheme of arrangement.

Block, which also trades on the ASX, has seen its share price decline 6.9 per cent since it completed the Afterpay takeover in late January. The shares now trade at $164.48.

Afterpay moved to buy the remaining 6.5 per cent of Clearpay held by Think Smart for $136.9m in December.

This comes after Afterpay bought 90 per cent of Clearpay in 2018 as part of its foray into the UK.

The company also closed out two convertible notes issued to Matrix Partners and Weston and Co.

The company extinguished the 65 per cent remaining of the Matrix Convertible note, issuing 6.5 million shares in Afterpay to cover the costs.

Afterpay also closed out the SGX Convertible note, with $1m in new shares issued to note holders and another $1.499bn outstanding redeemed.

Total income across the company rose, hitting $644.9m, up from $417.2m in the year prior.

The loss blowout at Afterpay was driven by lifts across the company in expenses.

Employment expenses hit $200.3m for the year, up from $62.6m.

The growing employee expenses comes as fellow BNPL players Zip and Sezzle touted the potential efficiencies of their tie-up announced in February this year.

The $200m deal came after the two companies battled Afterpay and several other BNPL players in a bid to grab territory.

Citi Australian technology analyst Siraj Ahmed in a recent note pointed to the still comparatively small size of the combined platforms, with 8.3 million customers between Sezzle and Zip. This is compared to Afterpay’s 12.4 million customers.

However, the steady rush of BNPL results has revealed the growing cost of attempts to acquire customers.

Afterpay’s results come as other listed BNPL players have seen routs in their share price on broader fears of profitability of the sector. Shares in Zip are down 69.47 per cent since the start of the year.

Ratings agency Moody’s in a recent note pointed to the “limited impact” of BNPL providers in putting pressure on bank profitability.

Moody’s noted the leading BNPL platforms held the potential of growing into challenger companies by providing a launching pad for financial services to their customers.

Block’s payment’s arm Square has secured an Australian banking licence.

“Banks are responding by offering their own BNPL services,” Moody’s noted.

“At the same time, as Afterpay and Zip are not banks, they cannot directly collect retail deposits and have to rely on funding from banks or wholesale markets to fuel their growth.”

Barclays analysts note Afterpay’s results, which contained a slew of expenses and costs, may point to future profitability.

“We believe this may translate into a positive, mid-teens (or higher) number on an adjusted basis,” Barclays said.