Is another boom in ASX BNPL stocks brewing? And how would Mk. 2 differ from Mk. 1

Is a new era on the horizon for ASX BNPL stocks? After a boom that lasted from Afterpay’s May 2016 IPO to its acquisition in the September quarter of CY21, there was a crunch in the sector.

Rising interest rates and inflation sent many companies – Openpay, Laybuy, Sezzle, Payright and Zebit just to name a few – out of business or into private hands. A handful managed to survive the crunch, particularly Afterpay, which is now just a payment option in Block’s (ASX:SQ2) Cash App. Zip was another, and has rebounded substantially from its 2023 lows. Could this be a new boom for BNPL stocks?

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How another boom in ASX BNPL stocks would be different this time

It is said that the most dangerous words in investing are,’ It’s different this time’. But that doesn’t mean it is necessarily true all the time. Consider the dot com bubble that led to many companies collapsing. Not all of the winners were killed off, some survived, and those that did would emerge to become stronger than ever. Just ask Amazon.

Turning to the BNPL sector, just because many companies collapsed, it doesn’t mean people don’t need their services and won’t turn to an alternative. Nearly two in five Australians used a BNPL service in the six months leading up to March 2024, with Gen Z and Millennials being key users. Inflation has come off its all time highs, but remains sticky, and it is not as if many consumers’ pay has been increasing at the same rate.

The few stocks left in this space have seen this first hand. In theFY25, Zip recorded $13.1bn in Transaction Volume (up >30% in a year) and $1.1bn in revenue (up 24%), along 93m transactions (nearly half of which were in the US), 6.3m customers and 85,500 merchants. The irony is that 3 years ago, in the June quarter of 2021, there were 7.3m ‘customer numbers’. The decline in customer numbers can be put down to the company’s divestment of its businesses outside Australia, New Zealand and the USA. What’s more – net bad debts as a percentage of TTV fell from 1.66% to 1.52% – albeit just over $200m.

There are other BNPL stocks too

Zip is not the only BNPL company left, however. There is Block on the ASX, although investors no longer get a disclosure of how many users and revenue the Afterpay segment gets.

In the US, the most famous stock is Affirm (NDQ:AFRM). Last year, Apple integrated Affirm into its own product after a failed attempt to build its own product. So much for BNPL being a commodity anyone could copy, let alone do well.

With 60m Apple Pay users in the US alone, there’s a big market to be tapped into. In the most recent fiscal quarter, Affirm made US$10.4bn in revenue (up 43%) and $876.4m in revenue (up 33%). And its bottom line was in the red by $69.2m.

Another major company is Klarna. It was founded in Sweden and has amassed about 111m worldwide users. It has long been an IPO candidate but has held off due to market conditions…until now. Earlier this month, it debuted and was valued at over US$20bn post-listing. The most recent quarter was its 5th straight quarter and it made US$823m revenue. This is lower than its all time peak of US$45.6bn in 2021, but ahead of its fall to US$6.7bn in 2022. Why the improvement? Improvement in on-time payments, merchant growth and maintaining profitability.

Of course, BNPL companies are popular for a reason…

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byu/Scabanned inwallstreetbets

If it is a new era for the BNPL sector, it would be different (or maybe not)

If this is a new dawn for the BNPL sector, the sector would be dominated by a few larger companies that would derive benefit. But on reflection, this really isn’t much different than before. After all, the small caps like Openpay, Zebit, Splitit and Laybuy did nothing compared to Afterpay and Zip. At the same time, even the companies that survived are better businesses than they were during the pandemic.