Despite a ‘record high quarter’ for sales volume, the Splitit Ltd [ASX:SPT] share price hit a 52-week low in morning trade.
Although SPT later rebounded somewhat, the BNPL stock was still down 1% at time of writing.
SPT shares exchanged hands for 49 cents per share, hovering just above the 52-week low of 48.5 cents.
The market’s cold reception to Splitit’s latest results underlines the BNPL stock’s negative performance this year, with SPT down 60% year to date.
Looking at Splitit’s 2Q results
Here are the key results from SPT’s Q2 FY21:
- ‘Record high quarter with Merchant Sales Volume (MSV) US$90.3M, up 38% Year over Year (YoY), ending H1 FY21 with a total MSV of US$172.4M up 93% YoY
- Total merchants increased 167% to 2.8K, with over US$2BN in addressable MSV1 across multiple large merchants, including HP (Singapore), Gem Shopping Network, Alternative Airlines, Rare Carat, La-Z-Boy Furniture Galleries, PROCAM and Faberge
- Total Shoppers increased 66K to reach 566K
- Partnership with tabby, the leading Middle East BNPL provider, showcases ‘Platform as a Service’ capabilities
- New merchant acquisition expected to accelerate in H2 and beyond, with recent merchants signed expected to be coming online in Q3 and a more robust and healthier pipeline
- Consolidation of debt facilities significantly reduces the cost of funds, improving margins through H2 FY21.’
Looking at its cash flow, Splitit recorded US$2.55 million from customer receipts.
Year to date (six months), customer receipts reached US$5.15 million.
However, the customer receipts were eclipsed by the company’s marketing, administration, and staff costs.
Splitit ended the quarter with net cash operating loss totalling US$9.53 million.
Splitit share price: The great BNPL divergence
Let’s consider the following stats.
Over the last 12 months, Splitit is down 60%.
Openpay Group Ltd [ASX:OPY] is down 65%.
And Laybuy Holdings Ltd [ASX:LBY] is down 75%.
In the same period, Afterpay Ltd [ASX:APT] is up 50%.
Zip Co Ltd [ASX:Z1P] is up 14%.
And Sezzle Inc [ASX:SZL] is up 15%.
Out of the mentioned BNPL stocks, only Afterpay is outperforming the ASX 200 benchmark, with the XJO gaining more than 20% in the last 12 months.
That in itself is illuminating.
It seems the once red-hot BNPL market is cooling off, perhaps seeing investors jump over to the surging lithium stocks instead.
But it is also interesting to note the divergence within the sector.
It seems BNPL is consolidating around the largest players.
The market capitalisation of SPT, OPY, and LBY is $225 million, $125 million, and $115 million, respectively.
The market cap for APT, ZIP, and SZL is $29.5 billion, $3.8 billion, and $835 million.
In a way, it makes sense why the market is shunning the smaller BNPL stocks.
The sector is sensitive to network effects.
For instance, the more popular a computer system is, the more applications it will attract and the more users it will draw.
That’s partly why Microsoft’s Windows software is so dominant.
In BNPL’s case, merchants are likelier to accept Afterpay and Zip if they think most customers are with Afterpay and Zip.
In turn, if customers see that most of their favourite retailers accept Afterpay and Zip, it persuades them to sign up to those platforms.
Merchants beget users; users beget merchants.
This bodes well for the biggest, established BNPL players but not for the smaller, newer ones.
The key for Splitit is to find a way to boost its profile and presence among users, whether that be more marketing or more attractive merchant fees, or payment plans for customers.
Or Splitit could also find ways to innovate the BNPL sector further.
The company is already experimenting with white-labelling its products via a ‘platform as a service’ offering.
It will be interesting to see how this platform as a service functionality contributes to Splitit’s top-line growth.
Now, if you’re interested in the changing payments landscape and wondering if there are other fintech investing opportunities apart from the saturated BNPL space, then definitely read our free report on three innovative Aussie fintech stocks with exciting growth potential.
Download the free report here.
For Money Morning
PS: Our publication Money Morning is a fantastic place to start on your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here