Date : 05/11/2020

Splitit Payments Ltd

ASX :

SPT

Market Cap : $558.13 Million

Buy

52 Week Range : $0.205 - $1.930

Share Price : $1.330

We continue to recommend members to "Buy" in light of a fantastic Q3 and increased market potential with the addition of a new vertical for Splitit.

Company Analysis

Splitit Payments has had a good year in FY2020. The stock has surged over 100% in 2020 and over 200% in the last 6 months. We believe Splitit is only getting started. In the past week, the stock has dipped, and we think a buying opportunity has opened up for investors who do not have exposure to Splitit yet.


Source: Tradingview.com

BNPL has lots of potential and it is here to stay. The long-term outlook is very positive for the industry as a whole and the growth will be led by a booming e-commerce market. The fact that Visa and Mastercard have partnered with Splitit is a huge complement to the industry. The positive here is that everybody who owns a Mastercard or Visa credit card will be able to access Splitit and use their BNPL service without having to register or fill out a single form. All the credit checks are done by the bank issuing the Visa or Mastercard credit cards and thus Splitit’s risk of bad debt is reduced. The catch? Well, merchants have to sign up to Splitit and offer it on their website/store.

Since our last coverage, Splitit has provided an update on its performance. It is positive and the next quarter looks like it will be even better with new technological advancement and the potential for increased revenue from holiday sales.

Updates

Splitit announced a partnership with FinTech professional services firm Quickfee in September 2020. Quickfee has processed more than US$300 million in FY2020 and it is a firm in its growth stage. The partnership allows users of Quickfee to use Splitit and use the zero interest BNPL option during checkout. This agreement adds more than just another merchant for Splitit. It opens up the potential to venture into a space of professional services. That is, Splitit can now not only be used by consumers when they are shopping, but also by small and micro businesses to pay for services. Splitit’s unique business model of working with Visa and Mastercard is what has made this possible and it has opened up a new space for revenue to come from in the future.

Merchant Sales Volume grew by 214% year-on-year and is now at US$70.9 million. This growth was led by North America and Europe by 200% and 232%, respectively. Splitit managed to attract larger merchants (such as Quicksilver, Billabong, DC, etc) during the quarter – which is in line with its growth strategy. Larger and well-known merchants allow Splitit to take advantage of the holiday sales and potentially have a better Q4 and end to its financial year.

The firm has seen increases in merchants and customers using their service. The year-to-date growth shows merchants increasing by 117% and customers by 97%. More merchants have been added in Q3 than ever before. The total addressable online sales volume of all these merchants is over US$3 billion. The total number of customers is now 362,000 – which is close to double compared to this time last year. Splitit follows the January to December financial year cycle. For its September end Q3, performance has tripled. Gross Revenues have grown to US$2.4 million – 318% year-on-year growth. Growing merchants mean more gross fees from sales.


Source: Splitit

Outlook

These metrics show that Splitit has grown in strength even during a time when consumer spending has decreased globally due to the pandemic. A stage has been set for Q4 and beyond to further drive growth. Splitit has US$108.4 million in liquidity following their placement equity raise. US$73 million is also available in loan facilities to fund merchant growth. We estimate marketing expenses for FY2020 to be higher than ever before when the results for the year are out.

Technological advancements to its product are being made as well. Splitit is looking to launch a feature in Q4 where Visa card users will not even be directed to a new page when using Splitit to make payments online. This feature will mean shoppers will spend more time on merchant websites and it is forecasted to increase conversions into sales by 20%. These are the types of technological product improvements that have defined technology firms in the USA as statistical precision is introduced when improving features that directly contribute towards revenue. Cart abandonment is a $4.6 trillion issue in the world of e-commerce as 70% of shoppers abandon their cart before making the final purchase decision. Splitit is trying to combat this and put the power back in the hands of merchants by offering up their service without an added overlay. Self-onboarding has also gone live in the USA. This enables merchants to seamlessly come into the Splitit platform as a partner merchant – increasing the potential for more revenues for the firm.

Splitit is thus tackling two very important points here with their technology – price and user experience. Both these go hand-in-hand.

The US consumer credit card market of $2.9 trillion is being targeted by Splitit by enabling the use of its service for both – professional services and e-commerce. The market potential is thus huge and Splitit is making huge strides forward.

Adoption and growth come first in industries that are characterised by low margins. High volumes are thus required to turn profitable in the long term. Splitit is in its growth stage with a very high total addressable market and is not short of funding or investors to drive growth.

Analysis of the financials of the company remain the same from our previous report. What has changed since then is the increase in potential and total addressable market. Investors who are looking at Splitit are urged to have a look at our first coverage of the stock by clicking here.

Recommendation

Splitit has had a fantastic quarter and it is forecasted to continue its growth in North America and Europe. We see an opportunity to “Buy” at these prices and we, hence, recommend the same to our members.

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