Mixed fortunes for BNPL stocks; Zip and Afterpay make strong gains

The “buy now, pay later” sector has reported mixed fortunes, with local majors Afterpay and Zip Co reporting strong gains.

Zip and Afterpay each reported strong share price gains in the hotly contested segment, up 8.8 per cent and 2.6 per cent respectively.

The “buy now, pay later” sector has reported mixed fortunes, with local majors Afterpay and Zip Co reporting strong gains but New York-based Splitit staging a retreat after unveiling its third-quarter result.

US-focused Sezzle, which also reported for the September quarter, lifted 26c, or 3.3 per cent, to $8.26 after underlying merchant sales climbed 232 per cent to $US228m ($318m).

Zip and Afterpay each reported strong share price gains in the hotly contested segment, up 8.8 per cent and 2.6 per cent respectively.

Sezzle executive chairman and chief executive Charlie Youakim said the company’s products continued to show their resilience and appeal in a difficult economic environment.

“Our strong performance in the third quarter is reflective of an improving Sezzle customer profile, along with the continued ­acceleration of e-commerce in the marketplace,” Mr Youakim said.

Royal Bank of Canada analyst Tim Piper said Sezzle beat market expectations for key benchmarks, including new customers, value per customer, underlying merchant sales and merchant fees.

There was also positive, initial feedback from the company’s soft launch in India in July.

Sezzle is the only BNPL option testing for a possible market entry in India.

More broadly, RBC noted Sezzle reiterated its ambition to achieve an annual run rate of $US1bn in underlying merchant sales by the end of 2020, implying $US250m per quarter.

“Sezzle has been run-rating at $US912m for the third quarter and $US986m in the month of September, and remains well ­positioned for the seasonally high fourth quarter,” Mr Piper said.

“We feel Sezzle is tracking ahead of our expectations due to the benefit of current structural tailwinds, although the risk of the growth easing due to less stimulus in the coming months is not to be discounted.

“Given Sezzle’s current scale and merchant skew to small and medium businesses, successfully adding larger merchants to the platform would materially move the dial.”

Last month, investors rallied behind Sezzle’s plan to offer consumers loans of up to $US40,000 to finance the purchase of big-ticket retail items such as furniture, electronics or bikes.

The Minneapolis-based company previously carved out its niche by offering mostly younger Americans small, interest-free loans paid back in four equal instalments.

Sezzle has partnered with US online-only bank Ally Financial to make loans of longer duration.

At Splitit, whose largest markets in the US and Europe, merchant sales volume also grew strongly but from a lower base, up 214 per cent for the third quarter to $US70.9m.

The company reported a 318 per cent increase in gross revenue to $US2.4m, and a 117 per cent boost in the number of merchants to 1400.

The Splitit platform has 362,000 shoppers, up 97 per cent year on year. The number of active customers for Sezzle grew faster from a larger base, up 178 per cent to 1.79 million.

Splitit CEO Brad Paterson said the addition of new customers showed shoppers were turning to Splitit to “better use their own earned credit”. Splitit was ­attracting more “forward-looking” companies to its platform.