Thursday, 20 June 2024

Square to acquire AfterPay in $29 billion deal

5 min read

By Dandreb Salangsang

Square announced its acquisition of Australian buy now, pay later (BNPL) company, AfterPay, through a $29 billion deal. Square posted a net revenue of $9.5 billion, up 101.5% year-on-year (YoY). Its subscription and services-based revenue reached $1.54 billion, up 49% YoY.

  • Square posted a gross profit of $2.73 billion with a 45% YoY increase
  • AfterPay posted $4.1 billion in sales from its customer base of 11.2 million
  • BNPL market size was valued at $90.69 billion globally

Square posted a gross profit of $2.73 billion with a 45% YoY increase

Square, a fintech company known for its CashApp, announced its acquisition of AfterPay through a $29 billion deal. The purchase price is based on the closing price of Square’s common stock of $247.26 on 30 July. The transaction is expected to close in the first quarter of 2022. It values Afterpay at more than 30% premium to its latest closing price of $70.87.

Jack Dorsey, co-founder and chief executive officer of Square, shared, “Square and Afterpay have a shared purpose. We built our business to make the financial system more fair, accessible, and inclusive. Afterpay has built a trusted brand aligned with those principles”.

Square posted a gross profit of $2.73 billion with a 45% YoY increase in 2020. CashApp generated a gross profit of $1.23 billion with 168% YoY increase while Square Seller Community generated $1.51 billion with 8% YoY increase. Subscription and services-based gross profit was $1.32 billion with 65% YoY increase. Transaction-based revenue reached $3.29 billion with a 6.8% YoY increase. It posted an operating expense of $2.75 billion with an increase of 48% YoY.  Square generated $4.57 billion in bitcoin sales in 2020 via CashApp.

AfterPay posted $4.1 billion in sales from its customer base of 11.2 million

AfterPay generated $4.1 billion in sales. It has a customer base of 11.2 million across its markets such as Australia, the US, and the UK. AfterPay has acquired 3.4 million customers in Australia and New Zealand with a 14% market penetration. In the US, AfterPay’s market penetration is 2.5% despite having a higher customer base of 6.5 million. In the UK, it has 1.2 million customers.

Other peers in the BNPL market have seen a modest growth in customer acquisition and revenue in 2020. US-based BNPL company Affirm grew its active consumers by 52% to 4.5 million. The company’s merchant base grew by 90% YoY. It posted a revenue growth of 57% YoY and a 55% YoY increase in quarterly gross merchandise volume to a record $2.1 billion. Swedish payments solutions company Klarna posted a revenue of $1 billion with 40% YoY increase and $46 billion in volume with 46% YoY increase.

Global BNPL market valued at $90.69 billion

The BNPL market was valued at $90.69 billion in 2020, according to Allied Market Research. It is projected to reach $3.98 trillion by 2030, growing at a compound annual growth rate of 45.7% from 2021 to 2030. The BNPL scheme is a short-term financing that allows consumers to purchase products with its point of sale instalment loan process.

The BNPL trend has gained traction in Asia by enabling consumers to defer payments and access credit. Atome is a Singapore-based BNPL player that allows consumers to split bills into three equal payments over two months. It charges zero interest and service fees. Since its launch in 2019, it was able to partner with 3,000 online and offline retailers in nine markets such as China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, Taiwan, Thailand, and Vietnam.

Akulaku, a fintech startup in Indonesia, specialises in online credit, wealth management, and digital banking. It started as a virtual credit card provider before building its own e-commerce platform and branching into other business lines including wealth management and peer-to-peer lending.

Pine Labs is an offline BNPL service with a 95% market share in India. It partnered with Mastercard to expand in Southeast Asia and bring its BNPL capabilities to Thailand and the Philippines in 2021. Paidy is a fintech startup in Japan that provides point of sale financing to consumers. The company uses proprietary machine learning algorithms to calculate creditworthiness, underwrite transactions, and guarantee payments to merchants. Paypal announced on 7 September the acquisition of Paidy through a $2.7 billion deal. The move was due to its plans to expand its presence and capabilities amid the trend for digital payment solutions. Paypal shared that the acquisition will strengthen its position in Japan and complement its cross-border e-commerce business in the country.

With the fast growth of digital transformation in commerce, a BNPL scheme is a game changer because it allows consumers, particularly those that do not have credit scores, to make payments for their e-commerce transactions without dealing with a credit card.

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