Beforepay makes money on loans, but advertising costs mount

The pay-on-demand lender reported a surge in revenues as the new entrant lender goes for growth, but expenses have also climbed.

Beforepay CEO Jamie Twiss.

ASX newcomer Beforepay’s spending on advertising has topped nearly half the company’s losses as it chases new customers.

But a turnaround in the lending model has seen the business turn a profit on loans, in a development the company is flagging as pointing to earnings ahead.

In its first results since its initial public offer, Beforepay posted a five-fold lift in half year revenues to $5.95m as the company goes for growth.

The pay-on-demand lender, which listed in January, still reported a $19.62m loss in the six months through December.

However, this included $5.44m in costs incurred by the business for listing and settling convertible notes.

It also compares to Beforepay’s losses of $3.35m incurred by December 31 2020.

Beforepay’s marketing spend of $6.75m over the half-year period weighed on results.

The company did not provide investors guidance in its prospectus, noting that it is “currently in a growth phase, which makes forecasting future financial performance with reliability difficult”.

Beforepay noted its growth momentum continued with its pay advances up 563 per cent against levels recorded in the year earlier period.

Net transaction loss on loans has also scaled back from 7.4 per cent to just 2.9 per cent “driven by improvements in our proprietary, real time approval algorithms and enhanced limit management”.

Beforepay also noted its net transaction margin on loans turned positive to 6 per cent from a 103.6 per cent loss.

This sees Beforepay now making money on each loan it offers, a positive sign for the business according to chief executive Jamie Twiss.

“The positive unit economics is really important for our story,” he said.

“I’m very pleased with the underlying result of the business. We’re continuing to see very strong growth.”

The market welcomed the news, with shares up 2.61 per cent to $1.18 by close.

However, the company is still haunted by a torrid listing, which saw investors sell down shares in the company 44 per cent in one day to $1.92 from $3.10.

Beforepay did not provide guidance for the year ahead, but Mr Twiss noted that the most important thing for investors to consider was “the growth story” on the back of positive unit economics on loans.

“We can now point to significant profit. It puts us at a much stronger position going forward,” he said.

Mr Twiss said in the year ahead, Beforepay would look to grow its operations and was considering what it might do to supplement its distribution or accelerate its growth, including exploring overseas opportunities.

Mr Twiss said analysts were keen to hear about the transition to the company’s lending model.

Mr Twiss said Beforepay was conscious of costs in the current economic environment, which has seen a major sell-off in fellow fintechs, adding to the challenge of any potential capital raising.

“Obviously we’re very, very conscious in using shareholder dollars wisely,” he said.

“We’d do this anyway but especially in current market conditions when a dollar leaves this building, whether it’s on marketing or overheads or anything else.”