Why the Afterpay and Zip share prices have tumbled
Shares in BNPL providers Afterpay (APT) and Zip Co (Z1P) have risen 15% over the last month.
It isn’t turning out to be a good day for investors in buy now pay later (BNPL) bulwarks Afterpay (ASX: APT), Zip Co Ltd (ASX: Z1P) and Sezzle (ASX: SZL). The 3 stocks were the worst performing stocks on the ASX in early trade on Wednesday and were each trading around 9% lower at the time of writing.
Why are the Afterpay and Zip stock prices sliding?
The BNPL sector seems to have been hit by a double whammy of negative news on Wednesday.
The main trigger for the slide in investor sentiment in the sector seems to be a Bloomberg news report overnight that technology giant Apple (NASDAQ: AAPL) is readying for a push into the BNPL sector.
Apple and Goldman Sachs are partnering to launch a BNPL service through Apple Pay called Apple Pay Later, the report said.
Under the plan, Apple Pay users will get an option to spread payments for their purchase across 4 interest-free payments made every 2 weeks, similar to the model followed by Afterpay, Zip and Sezzle. Alternatively, they could make the payment across several months with interest.
Analysts have warned for months that market leaders like Afterpay and Zip are set to face rising competition in the BNPL market as more players look to take advantage of the economic recovery following the global vaccine rollout.
Apple’s entry means those words are coming true, making it harder for the incumbents in the US, the world’s largest retail market where Afterpay and Zip have spent considerable effort and money.
But that is not the only piece of bad news for BNPL providers.
PayPal will charge merchants the same fees it does for other payments and also scrap late fees completely for customers, which it says would be a first for BNPL transactions in Australia. That is clearly a move designed to take a slice out of Afterpay’s dominant market.
Meanwhile, news reports indicate local giant Commonwealth Bank (ASX: CBA) is also readying its own BNPL push with a service called StepPay.
Analysts at Macquarie said in a recent report that there is likely to be industry overcapacity in the near term, which will be followed by a few years of pain for all players in the market.
Those concerns will clearly result in reversing some of the recent gains made by the major BNPL operators. In the last month, improving investor sentiment had helped Aftepay and Zip shares rise 15% each, although Sezzle shares were down 6% over the same period.
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