In payments, there are the disruptors — and the risk that the disruptors get disrupted.
Buy now, pay later (BNPL) companies and other FinTechs that promise to change the ways commerce is done have been having a moment, you might say. Over the past several months, consumers have gravitated toward streamlined checkout and spending the cash that they have on hand, rather than tapping credit cards.
And yet, amid the economic headwinds that continue to gather in the United States and on a global stage, there are some bumps ahead — at least as reflected in the stocks of some of these firms. The stocks themselves have been nothing but volatile, and the volatility is set to continue.
As reported Tuesday (April 5) by CNBC, sell-side firm MoffettNathanson said “longer-term growth trajectories are likely to disappoint” at two companies in particular: Toast and Affirm. Toast was initiated with a “sell” rating and Affirm with a “neutral” rating.
“Sell” ratings are relatively rare on Wall Street, and in Toast’s case, the analysts initiated the name with a $19 price, which would represent a significant decline from the $24 that had been seen Monday. MoffettNathanson has pointed to Toast’s reliance on the restaurant industry as akin to being exposed to a “relatively narrow slice” of payments, and noted, too, that several competitors are coming into the space to modernize restaurants’ point of sale (POS) to bring payments more firmly into contactless, flexible settings.
In one example of the space getting a bit more crowded, earlier this month, Paerpay, a contactless payment solution for restaurants, announced that it closed $3 million in seed funding led by MassMutual through its MM Catalyst Fund, alongside several other investors. There’s Square as a competitor, too, with its Square for Restaurant’s offering.
Opportunities and Challenges
The greenfield opportunity is there, as Toast’s filings with the Securities and Exchange Commission (SEC) estimate that spending on ResTech will double from 2019 to about $25 billion by 2025.
The total locations served by the platform, Toast said, according to the filing, represent about 6% of the 860,000 locations in the U.S. The annualized recurring run rate (ARR) was 3% of the near-term serviceable market opportunity of $115 billion.
Affirm has limited upside, at least taking Monday’s share price into account — where the stock closed at a bit more than $47, and where the price target is $50. Affirm faces risks tied to increased competition, too, and the specter of pressures within the credit markets in general.
Indeed, BNPL has been having a moment, you might say. PYMNTS’ own research earlier this year showed that as many as 50 million consumers have used BNPL through the past several months.
MoffettNathanson’s concerns come just a few weeks after Affirm raised its outlook last month, up from guidance it had initially given in February. Affirm now forecasts fiscal third-quarter revenue of at least $335 million, up from the previous forecast of $325 million. The company also noted that its credit losses have been performing better than had been expected.
It remains to be seen just how adroit BNPL providers prove in navigating inflationary or even recessionary headwinds. BNPL is evolving, too, driven by the movement to offer credit lines as installment payments, and even speedier decisions, buoyed by 5G.
As for the stocks themselves, expect turbulence ahead. PYMNTS’ FinTech IPO Tracker, which monitors the performance of more than 40 companies that have gone public through the pandemic, (Square and Toast among them), was down by 20% at the end of the first quarter.