On Wall Street, there are haircuts — and then there are full-blown shearings.
Yes, the headlines may be focused on Klarna’s 85% shellacking when its most recent financing round, at $800 million, implies a $6.7 valuation that is leagues below the $45.6 billion seen last year.
And the damage has hardly been isolated.
Affirm is off 87% from its peak of about $164 a share and recently changed hands at $21. Sezzle once changed hands at more than $10 and now is just pennies on the (Australian) dollar, at 41 cents.
The companies that have bought BNPL enterprises, like Block, are off more than 60% year to date — it might be said that investors are punishing the acquirers by proxy.
Variations on a Theme
These data points are variations on a theme: The same holders who bid up the shares in recent months, as BNPL exploded, are now shooting first, asking questions later. Panic, we might say, begets panic, and no one wants to be left holding the bag.
It’s important to keep in mind that earnings season looms. Since Wall Street is typically forward-looking, the wholesale abandonment of BNPL names speaks volumes about what is anticipated in the weeks and months ahead. And indeed, analysts are expecting significant slowdowns.
By way of example, the Street sees Affirm’s top-line growth slipping to about 35%, where that growth had been more than 50% in recent quarters, per data from Yahoo Finance.
Credit Quality in Focus
Perhaps the most telling commentary and tables will be centered on credit quality. So, too, will management commentary on the ways and means they intend to use technology, marketing and various operating models to combat Apple’s entry into the space. In the meantime, macro headwinds abound, where inflation makes it harder to manage debt, where living paycheck to paycheck is an existence predicated on “juggling” weekly and monthly financial obligations.
We contend that enough longer-term trends are in place to support BNPL — though the business models will, of course, have to evolve. Perhaps with some model cases having longer loan terms, leveraging advanced analytics to make sure that credit underwriting is done with as much data (some of it gleaned from alternative sources) as possible.
As PYMNTS found in one recent BNPL tracker, older, more financially secure customers are some of the fastest-growing groups of BNPL users — which might help shore up (some) worries of over credit quality.
According to the report, 71% of BNPL users with annual incomes greater than $100,000 increased their usage of the service over the past year, a higher growth rate than that observed in all lower-income brackets. BNPL may be stuck in the doldrums, but the potential to bounce back is in the offing.
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