Beforepay (ASX:B4P): It survived the post-COVID BNPL Bust, and appears to be thriving…but is it really?

After a disasterous IPO, Beforepay (ASX:B4P) appears to be thriving. After all, its share price is up over 500% in the last 2 years, it survived the BNPL Bust when so many peers (i.e. Openpay, Zebit and Payright) did not.

However…at $120m, it is still below its IPO valuation of $158m. But the question we’ll look at is: Can this run be maintained?

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Beforepay’s rollercoaster ride

Beforepay began in 2019. At that time, Afterpay was entrenched in the market and Beforepay was one of many companies that thought it could do better. But unlike many of its peers, Beforepay did have a differentiating factor: its product was a “Pay Advance” product where eligible customers can access a portion of their pay earlier, up to around A$2,000, for a fixed transaction fee (~5%), with no interest or late‑fees.

It listed in January 2022 at $3.41 per share and raised $35m in capital. Shares plunged by more than 90% over the following months as investor momentum came out of the BNPL business model as interest rates rose.

Let’s look at the company’s first annual results as a listed company, in FY22. It had 173,398 active users, up from 102,621 12 months prior. It made $327.3m in pay advances, with the average being $268 (those figures being up 252% and 64%). But the net transaction margin was just 1.1% and the net transaction loss was 2.4%.

Investors just couldn’t see how it could make money. And by ‘make money’, we mean make a profit. Not raise endless capital that would just get burned. Its revenue was just $15m and its net loss was $29.1m.

Getting better

FY23 saw an improvement with $30m revenue and a $6.6m loss, off $628m in advances. FY24 saw $710m advances with a $3.9m pre-tax profit. The company boasted just 1.4% Net Defaults, 1.3m net registered users and a cumulative $1.7bn cumulative advances. The net transaction margin was 2.7%. Then in FY25, $40.2m revenue, a $6.7m profit, just 1.1% net defaults and $807m advances. So clearly the company has moved on from growth at any costs and is focusing on profitable growth.

Beforepay has also obtained an Australian Credit license and can now offer regulated credit products. And so it launched personal loan products and tax refund advances.

The company also launched a B2B offering in Carrington Labs. Carrington is a provider of explainable AI-powered cashflow underwriting and credit risk analytics. In other words, it’ll help clients (i.e. lenders) make decisions as well as manage and detect risk in a number of ways using AI, aided with datapoints.

It promises more than 50,000 individual variables to select the 400-500 most predictive variables that could impact a borrower’s financial stability and creditworthiness, including behavioural, financial, and other factors, using gradient-boosting algorithms.

Investors are confident, but they should be cautious

We chose to write about Beforepay upon seeing its latest quarterly results. The company boasted $226.4m in advances (up 19% year on year and 9% quarter on quarter) and the average advance is $446. Its active users has actually gone backwards, by 1% quarter on quarter, but up 6% year on year. The company has $14.1m cash at bank and $43m in ‘equity position’.

You cannot argue investors are not confident in the company given shares are up nearly 200% in the last year and 500% in the last 2 years. We don’t like to talk down a company going well, but we still think investors wanting to ‘profit’ from lending would be better off investing in Macquarie (ASX:MQG) which is growing its lending book en-masse whilst those wanting exposure to BNPL would be better off turning to Zip (ASX:ZIP) as we believe it has better scale and profitability.