Shares of Square are up this morning without the visitor spoken its second-quarter earnings and that it will buy Afterpay, an Australian buy now, pay later (BNPL) player in a $29 billion deal. As TechCrunch reported this morning, Afterpay shareholders will receive 0.375 shares of Square in mart for their existing equity.
Shares of Afterpay are sharply higher without the deal was spoken thanks to its unsaid premium, while shares of Square are up 7% in early-morning trading.
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Over the past year, we’ve written extensively well-nigh the BNPL market, usually from the perspective of earnings from companies in the space. Afterpay has been a key data source, withal with the yet-private Klarna and U.S. public BNPL outfit Affirm. Recall that each visitor has posted strong growth in recent periods, with the United States welling as a prime competitive market.
Most recently, consumer hardware and services giant Apple is reportedly preparing a move into the BNPL space. Our read at the time was that any such movement by Cupertino would impact mass-market BNPL players increasingly than niche-focused companies. Apple has a fintech wiring and wholesale IRL payment acceptance, making it a potentially strong competitor for BNPL services aimed at consumers; BNPL services targeted at particular industries or niches would likely see less competition from Apple.
From that landscape, let’s explore the Square-Afterpay deal. We want to know what Afterpay brings to Square in terms of revenue, growth and reach. We moreover want to do some math on the price Square is willing to pay for the visitor — and what that might tell us well-nigh the value of BNPL and fintech revenues increasingly broadly. Then we’ll eyeball the numbers and try to decide if Square is overpaying for Afterpay.
What Afterpay brings to Square
As with most major deals these days, Square and Afterpay released an investor presentation detailing their treatise in favor of their combination. Let’s dig through it.
Square is a two-part company. It has a large consumer merchantry via Cash App, and it has a large merchantry semester that offers payments tech and other fintech services to corporate customers. Recall that Square is also towers out financial services for its merchantry customers and that Cash App moreover serves some financial and investing functionality for consumers.