Whatâs Going On Here?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). Itâs an area thatâs 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 formerâs case, thereâll be more people in its orbit who itâll be able to win over to its money transfer service, Cash App. And since Squareâs 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, Afterpayâs investors will receive 0.375 Square shares for every Afterpay share they hold. That mightâve made sense to Squareâs 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 isnât without risks, after all...
The bigger picture: The industryâs proving its mettle.
Afterpayâs revenue was $693 million last financial year, which means Squareâs $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 â a 38x multiple (tweet this). Americaâs Affirm, meanwhile, began Monday valued at roughly 20x revenue. Investors have noticed: they sent Afterpayâs shares up 6% following the announcement. | 