Explosion of bad debt fuels massive post-payment loss
Afterpay, Australia’s largest buy-it-now, pay-later company, now owned by US firm Block, announced a massive pre-tax loss of $501.9 million as more and more of its instant loan customers did not repay their debts.
The company’s operating expenses — particularly its bad debts — fell from $72.1 million a year ago to $176.8 million at the end of the first half, Dec. 31. Other rising expenses include a greater commitment to brand marketing.
That’s a significantly faster growth rate than the company’s revenue, which grew just over 50% from $417 million to $645 million year over year. ‘other.
The company’s net loss was $345.5 million, compared to $79.2 million for the December 2020 half.
Block paid US$39 billion to buy Afterpay, now widely seen as a major miscalculation.
“They overpaid $23 billion for this,” McLean Roche Consulting founder Grant Halverson told the Australian Financial Review. “These results are horrifying.”
The buy now, pay later concept allows retailers to offer instant free credit to consumers who don’t have the cash to purchase items, typically repayable in three monthly installments. The risk is then transferred to the BNPL company, which derives its income from a commission on transactions – and late fees.
Afterpay’s late payment fees — a key indicator of the proportion of the company’s advances being repaid on time — soared 124% to $79 million in the December half.
Gerard Brody, of the Consumer Action Legal Centre, told AFR that if late fees are rising, it’s “another really worrying indicator of the harms of this business model”.
“Any business making a significant portion of their revenue from late fees, that really signals to me that they are succeeding when their customer is losing. That is a really unethical way to run a business.
Block had already warned the market to expect bad news before releasing the latest results from Afterpay. The US company conceded that the previously forecast growth of 70% would be less than half of that – around 25-30%.
Rival buy now, pay later, the Zip company is in an even worse position. Its stock price has fallen from $12.46 in February of last year to just $1.32 today. After losing 80% of its value in six months, the company is now considering a merger with rival Sezzle.