Why has Afterpay’s (APT) share price hit a 52-week low?

Posted: 21 December 2021 1:00 pm
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Shares in BNPL market leader Afterpay have tumbled nearly 30% over the past 6 months, hitting a yearly low today.

Shares in Australian buy now pay later (BNPL) giant Afterpay (ASX: APT) are again among the most traded shares on the ASX, after the stock hit a 52-week low of $80.21 in early trading on Tuesday.

At the time of writing, it was still down 3.1% to $81.28.

Why is the Afterpay stock price on the downslide?

The fresh slide in Afterpay’s stock price is related to its impending takeover by US financial services and digital payments giant Square (NYSE: SQ), now rebranded as Block.

Afterpay’s shares have largely traded in line with Block’s stock price since both companies announced their blockbuster US$29 billion (AUD$39 billion) merger in August, which will be the largest in Australian corporate history.

Since Afterpay shareholders will receive a fixed ratio of 0.375 Block shares for every share they own, any fall in the Block share price reduces the value of the deal for Afterpay investors.

Overnight, Block shares slid more than 5% to $158.30 amid a sell-off in technology stocks on Wall Street.

The stock has also been losing ground over the longer term, and is now down 32% in the last 6 months.

Afterpay shares have performed in line with that and are down nearly 30% over the same period.

Both companies have faced numerous hurdles in completing their merger, with Afterpay earlier this month having to delay its shareholder meeting to vote on the deal because a subsidiary hadn’t received approval from Spain’s central bank.

The vote was subsequently completed last week and the companies still expect to complete the merger in the first quarter of 2022.

Sector overhang

Meanwhile, investors in the Australia-based BNPL leader have also turned nervous after it was listed among the 5 BNPL businesses facing increased scrutiny as part of a new inquiry by the US financial regulator.

The US Consumer Financial Protection Bureau (CFPB) last week asked the 5 companies – PayPal, Klarna, Affirm, Afterpay and Zip – to provide information on their business practices, amid concerns that their financing products are putting consumers at risk.

Financial regulators have been especially worried about reports of rising fraudulent activity and growing bad debts in the sector. Sweden-based Klarna last month said losses ballooned 4-fold in the first 9 months of the year.

Investors are now worried that the twin challenges of rising bad debts and more regulatory oversight on the sector will moderate the sky-high growth rates enjoyed by most of the BNPL operators, particularly in the US retail market.

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