The VerdictĪdmittedly, potential issues with Afterpay are not necessarily a concern in the immediate term. Hence, issues related to Afterpay could drive a big drop for SQ stock down the road. This nascent industry did not exist during the late 2000s “Great Recession.”Ī sharp recession would undoubtedly produce materially worse results for Afterpay than management’s guidance suggests. It’s unclear how the BNPL industry will hold up if there’s a severe contraction in economic activity. Doom”) believe that an economic “hard landing” remains very possible. Still, economists like Nouriel Roubini (aka “Dr.
economy experiences a “soft landing,” Afterpay may avoid experiencing a sharp increase in its loss rate. In fact, Afterpay’s credit quality has held up well despite the big climb in interest rates since early 2022.īut while this segment has been relatively resilient thus far, doesn’t mean it will continue to be throughout the year.Įven as the company remains confident that loss rates are not at risk of spiking, a lot hinges on how severe a predicted 2023 U.S. The company has yet to report rising loss rates with its BNPL business. While Block overpaid for Afterpay, so far this segment has delivered satisfactory fiscal results. The next challenge for the industry may be a rise in delinquencies because of the economic slowdown. Increased competition and soaring interest rates have already affected BNPL companies. Since the deal close, other BNPL competitors, both public and private, have experienced a severe drop in valuation.Īlthough the impact of overpaying for Afterpay has likely been a factor in the more than 50% drop in the price of SQ stock during this time frame, it’s very possible that additional downside lies ahead related to this deal. In hindsight, it’s clear that Block paid way too much for Afterpay. In January 2022, the company closed on its acquisition of the Australia-based “buy now, pay later,” or BNPL, platform. You may also know the competitive pressures that the company’s most well-known platforms are facing.īut besides both these potential headwinds, there’s another you may not be so aware of, and it is one of Block’s more recently-acquired fintech properties: Afterpay. Even if you haven’t been following Block all that closely, it’s very possible you’ve heard of the aforementioned short-seller controversy, which may cause increased scrutiny for CashApp.
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