Laybuy Holdings [ASX:LBY] shares have fallen this morning after a trading update from the buy now pay later (BNPL) fintech revealed some discouraging news.
LBY flagged continued problems with credit losses in its UK business, while forecasting lower-than-expected revenue growth this financial year.
Like its BNPL peers, the LBY stock plummeted over the last 12 months, as investors exited the once-hot sector:
Source: tradingview.com
LBY shares are down by more than 90% in the last 12 months. Having traded as high as $1.80, the BNPL stock now languishes at 8 cents a share.
But Laybuy wasn’t the only BNPL stock down today.
Zip Co [ASX:Z1P] was down 6% in late afternoon trade.
And Zip’s acquisition target Sezzle [ASX:SZL] was down 4%.
Net interest margin and revenues to slip
Laybuy expects its net transaction margin (NTM) to be negative in the fourth quarter and lower than the breakeven NTM reported in the third quarter.
Generalising the whole BNPL sector, LBY said:
‘Consistent with other Buy Now Pay Later (BNPL) market participants, Laybuy has experienced prolonged elevated credit and fraud losses in the UK in January and February 2022.
‘As has been widely reported, fraudulent activity, which is a key driver of credit defaults, has increased globally in recent months and this has impacted those involved in e-commerce, including the BNPL sector in which Laybuy operates.’
Laybuy promised to take a ‘proactive approach’ to reducing credit losses, including the deactivation of merchants attracting high levels of fraud and improving the fraud and credit decision process upon new customer sign-ups.
Of course, deactivating those merchants may impact gross transaction volumes.
But LBY did not provide a cost-benefit analysis regarding this point.
Maybe a dip in transaction volume is the sacrifice Laybuy is willing to make for a reduction in bad debts and credit losses.
Although Laybuy anticipates revenue to climb between 43% and 48% for FY22, this is lower than its earlier guidance of 60–70% growth.
Merchant commissions have also declined slightly.
Despite this, LBY reported growth in its Gross Merchandise Value (GMV), which was up 25% year-on-year (YoY) for the months of January and February.
A growth in customer and merchant numbers has also been reported, with over 175,000 active customers and over 4,200 active merchants added this financial year to date (since April last year).
Laybuy Managing Director Gary Rohloff commented:
‘Our focus at Laybuy is on prioritising measures to achieve profitable growth. The UK remains an important growth market for our business, while we continue to focus on growing our profitable operations in ANZ.’
Are ASX BNPL stocks a buy right now?
Is LBY a good buy right now?
Are any BNPL stocks a buy right now?
Many BNPL stocks who were high-flyers in 2020 are now down more than 80% in the last 12 months.
Some investors may see in this an opportunity to find bargains.
But can we classify BNPL stocks as bargains at this stage? What if further falls are likely?
The recent consolidation theme — evidenced by Latitude Group Holdings [ASX:LFS] acquiring Humm Group’s [ASX:HUM] BNPL business, and Z1P announcing plans to acquire Sezzle — points to an industry seeking strength in numbers.
Australia is the most crowded BNPL market. Competition is fierce.
As a result, BNPL services are becoming more fungible — BNPL is becoming a commodity.
That’s great for consumers, but less so for providers with dwindling margins.
As the last 12 months show, investors are pessimistic about BNPL stocks — who now compete with big banks like CBA and giant payment firms like PayPal.
Now, whatever you may think of the opportunity — or not — in BNPL stocks, it’s clear that BNPL is not the only game in town when it comes to fintech.
Our small-cap editors have recently profiled three promising Aussie fintech stocks currently trading at great value, which you should consider first.
To read the full profile of these Aussie fintech stocks, simply click here to read on.
Regards,
Kiryll Prakapenka,
For Money Morning
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