It has not been smooth sailing for the high flying buy now, pay later (BNPL) segment in 2021. Valuations were slashed and stock prices came crashing down in the February bond market sell-off. However, the technology sector and the BNPL shares are once again starting to look very positive. Afterpay and Zip, as expected, are leading the charge with global expansion, increased consumer spending in the USA, and the tailwinds from the ecommerce industry continue to drive APT shares and Z1P shares forward, albeit with a degree of volatility. For investors who can stomach the volatility, these top 2 BNPL stocks are once again looking very attractive and the shares are trading well off their peaks we saw earlier this year.
The competition in the BNPL space is extremely high. BNPL is an industry that requires very high volumes to generate revenues and strive towards becoming profitable. Afterpay and Zip have been able to continuously expand their global footprint with their deep pockets and first mover advantage and we stand by sticking to the big dogs in the BNPL sector. Z1P shares and APT both seem to have a lot of running room left in them and it’s also probably a safe bet to stick with the two companies.
Headquartered in Sydney, Zip Co. is one of the largest BNPL players in Australia. Zip has operations across Australia, New Zealand, South Africa, the United Kingdom, and the USA. With Zip’s acquisition of QuadPay, the firm has entered the highly lucrative North American market. In the firm’s latest quarterly report, Zip US (Quadpay) was again a standout, delivering significant growth in what is typically a seasonally quieter trading period, achieving record results across all core metrics –$762.0m in transaction volume (up 234% YoY), $54.4m in revenue (up 188% YoY) with 674k new customers joining the platform (up 153% YoY to 3.8m customers). The group has had a fantastic quarter with revenue up 80%, transaction volume up 114%, and customer numbers going up by 88% to 6.4 million.
Zip has been subject to lots of attention recently and data reveals that it is also among the top 10 shorted stocks on the ASX. It comes as no surprise given the level of competition with the BNPL sector. However, Z1P has been performing exceptionally recently and they are expanding across all continents. Given the aggressive expansion and if you can stomach the volatility in Z1P share price, this is one of the ASX shares to Buy now. Z1P shares closed at $8.78 a share – gaining over 13% today.
Afterpay is the biggest BNPL player in Australia and they have the first mover advantage in the USA as well. APT shares have slipped up this year despite the company not putting a foot wrong. With the US market becoming the largest contributor to Afterpay’s revenues, the firm is also looking to list on the US stock market. Much like Z1P, Afterpay did also report stellar numbers in the 3rd quarter update in FY21. APT delivered strong operating performance in Q3 FY21 across all regions with underlying sales up 104% over the prior corresponding period. Quarterly performance on a constant currency1basiswas 123% higher than Q3 FY20. Q3 FY21 underlying sales in the United States (US)and United Kingdom (UK) were up 211% and 277% respectively on Q3 FY20 on a local currency basis. March 2021 exceeded December 2020 and delivered the second highest monthly underlying sales ever recorded, with the US becoming the first region to record more than $1b in underlying sales in a single month. Afterpay has also grown their active customers by 75% to 14.6 million and active merchants by 77% to over 85,000.
There is still a lot of growth to come from Afterpay and APT shares are still trading well-off their Feb 2021 peaks. The positive momentum seems to have come back to APT shares with the stock gaining over 27% in the past month and over 3% just today. APT shares closed at $123.65 a share.
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