Happily Ever Afterpay

Image source: Damir Kopezhanov - Unsplash

What's going on?

US payments giant Square proceeded to checkout with plans to buy Australian fintech Afterpay for $29 billion on Monday.

What does this mean?

Afterpay is a buy-now-pay-later company that lets its 16 million customers spread the cost of an online purchase over a period of time, without racking up interest on those payments (providing they make them on time). Its an area thats gone gangbusters recently: Adobe Analytics has pointed out that use of buy-now-pay-later services had more than tripled early this year versus the start of the pandemic.

Square, for its part, is hoping the deal will boost both its consumer and business segments. In the formers case, therell be more people in its orbit who itll be able to win over to its money transfer service, Cash App. And since Squares business customers will be able to offer even more payment options to their customers, it should increase revenue on the business side too.

Why should I care?

For markets: There may be trouble ahead.

No cash is actually changing hands here: instead, Afterpays investors will receive 0.375 Square shares for every Afterpay share they hold. That mightve made sense to Squares top brass, given that its stock has doubled in the last year. But as is traditional when a firm agrees to buy another one, its stock actually fell on Monday: a deal this big on a company in an area ripe for a crackdown isnt without risks, after all…

The bigger picture: The industrys proving its mettle.

Afterpays revenue was $693 million last financial year, which means Squares $29 billion purchase price represents 42x trailing revenue. That might seem high, but Swedish rival Klarna was valued at $46 billion back in June with revenue of around $1.2 million in 2020 a 38x multiple (tweet this). Americas Affirm, meanwhile, began Monday valued at roughly 20x revenue. Investors have noticed: they sent Afterpays shares up 6% following the announcement.

Originally posted as part of the Finimize daily email.

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