BNPL sector watch: Was February another month of ‘hyper growth’?

Growth, growth, and growth?

The superstars of the Buy Now Pay Later (BNPL) space continue to trade off the highs they set at the start of 2021.

As part of their most recent results releases, many of Australia’s key BNPL companies (Afterpay, Zip and Sezzle) posted record transaction volumes and revenue growth; though profits remain elusive.

Briefly summarising those results, Afterpay delivered interim (FY21) underlying sales of $9.8 billion, total revenues of $417.2 million, and said it had 13.1 million active customers at the close of the half.

Sezzle, by comparison, reported full-year (FY20) underling merchant sales of $1,082.2 million, total revenues of $74.3 million, and said it had 2.2 million active customers.

Finally, as part of its interim results, Zip reported record transaction volumes of $2.32 billion, revenues of $160.0 million and had 5.7 million active customers by the close of the half.

Year-to-date, Sezzle is up ~22%, Afterpay has fallen ~6%, and Zip has surged ~56%.

Markets however are forward looking; and with each company’s next round of results a ways off – investors are likely keen to get insight into more recent operational performance, be it from traditional or alternative data sources.

In a recent piece of research, and using a combination of data from Similar Web and Sensor Tower, analysts from Citi have done just that, placing a specific emphasis on web traffic and new applications performance.

Commenting more broadly on the outlook for the sector, Citi analysts opined that:

‘Looking ahead, while Afterpay and Zip will likely have to cycle strong comps […] and near-term growth could be negatively impacted by slowing e-commerce as economies open up, we do see the third round of stimulus in the US as positive for the sector as it could support consumer spending.’

Adding further context to this research, while in general website visits and applications decelerated, this can largely be explained by the fact that there are less days in February than there are in January.

Beyond those considerations, below we look at some of the key points of data from that research. It should be noted that all figures cited below are unofficial research estimates.

Afterpay (ASX: APT)

Starting first with two of the largest players in the space, Citi analysts noted that both Afterpay and Klarna kept the 'top spot for website visits and app downloads respectively in the US' in February.

Despite that, across February, Citi analysts estimated that web traffic to the company’s US site rose 91% on a year-on-year basis, down somewhat from the January growth estimate.

Comparably, the investment bank estimates that APT app downloads rose 81% year-on-year, to 389 thousand during February.

By comparison, in Australia and New Zealand (ANZ), according to estimates, Afterpay saw its website traffic increase 40%, while app downloads fell 30% – not completely surprising given the ‘maturity’ and size of the local market.

Sezzle (ASX: SZL)

Like APT, Citi estimates that Sezzle saw decelerated growth in February, nonetheless estimating that web traffic growth remained explosive, up 171% on a year-on-year basis; but down from the 213% year-on-year growth estimate in January.

App downloads are estimated to have risen 192% in February, down from the 230% year-on-year growth rate estimated in January.

Zip (ASX: Z1P)

Finally, Citi research estimates that QuadPay (representing Zip’s US operating), saw its US web traffic surge 310% year-on-year in February, which, as with the other names looked at on this list, represents a slight deceleration from the estimated growth of 325% in January.

Elsewhere, February US app downloads have been estimated to have come in at 318 thousand, implying a 118% year-on-year increase.

The investment bank flagged that a significant portion of US traffic was derived from Fashion Nova and Gamestop.

By comparison to Afterpay, Zip saw better estimated ANZ traffic and app download gains. ANZ web traffic was estimated to have gained 50% in February; while Citi research suggest app downloads dropped 9% in that same period.

A backdrop of fierce competition

Set against the backdrop of this space, is a climate of increasing competition. PayPal, for example, was quizzed extensively by analysts on their involved in the BNPL space as part of the payment giant’s recent fourth quarter 2020 results – released on February 3.

Bolstered by the pandemic and the e-commerce boom that followed, Paypal reported full-year (FY20) revenues of $21.45 billion (+22%), operating income of $3.29 billion (+21%) and

Commenting on the way in which PayPal’s management views the BNPL offering, it was noted:

‘If you think about the way that we’ve gone to market here, and basically giving a product like this to merchants for free, this is really designed for us to capture share of checkout.’

The question that hangs over the space – particularly for Australian players – is will these competitive pressures erode margins? Only time will tell.

Looking forward, Paypal's Erica Gessert said

'We also have the ability to experiment a little bit with various structures on Buy Now, Pay Later and installments, so we'll be looking at that as we go to market in the future.'

In the last year the PayPal share price has risen a staggering 169% -- last trading a shade below US$250 per share.

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