Klarna’s 85% haircut sees investors shoot first

On Wall Street, there are haircuts — and then there are full-fledged shears.

Yes, the headlines may focus on Klarna’s 85% bombing as its latest funding round, at $800m, implies a valuation of $6.7, well below the $45.6bn of the company. ‘last year.

And the damage is far from isolated.

Affirm is down 87% from its peak of around $164 per share and recently changed hands at $21. Sezzle has already changed hands over $10 and is now just pennies on the (Australian) dollar, at 41 cents.

Companies that have bought BNPL businesses, like Block, have lost more than 60% year-to-date – you could say investors are punishing proxy acquirers.

Variations on a Theme

These data points are variations on a theme: the same holders who drove the stakes up in recent months as BNPL surged are now shooting first, asking questions later. Panic, we might say, breeds panic, and no one wants to be left with the bag.

It’s important to keep in mind that earnings season is approaching. Given that Wall Street is typically forward-looking, the massive abandonment of BNPL names speaks volumes about what’s to come in the weeks and months ahead. And indeed, analysts expect significant slowdowns.

As an example, the street sees Affirm’s revenue growth slipping to around 35%, whereas it had been over 50% growth in recent quarters, by data from Yahoo Finance.

Focus on credit quality

Perhaps the most telling commentary and charts will focus on credit quality. So will management’s comments on the ways and means they intend to use technology, marketing and various operating models to combat Apple’s entry into the space. . Meanwhile, macroeconomic headwinds abound, where inflation makes it more difficult to manage debt, where living paycheck to paycheck is an existence based on “juggling” weekly financial obligations and monthly.

We argue that enough longer-term trends are in place to support BNPL – although business models will, of course, have to evolve. Perhaps with some model cases having longer loan terms, leverage advanced analytics to ensure credit underwriting is done with as much data (some of which comes from alternate sources) as possible.

As PYMNTS found in a recent BNPL tracker, older, more financially secure clients are among the fastest growing BNPL user groups – which could help ease (some) credit quality concerns.

According to the report, 71% of BNPL users with annual incomes over $100,000 increased their use of the service in the past year, a rate of growth higher than that seen in all lower income brackets. BNPL may be stuck in the doldrums, but the potential for a rebound is in sight.

Also read: BNPL: How older borrowers can help BNPL businesses weather the storm

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