Macquarie sees near-term pain for the Afterpay (ASX:APT) share price

Macquarie Group Ltd (ASX: MQG) sees short-term pain for the Afterpay Ltd (ASX: APT) and BNPL industry as competition mounts

| More on:
Young man looking afraid representing ASX shares investor scared of market crash

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Macquarie Group Ltd (ASX: MQG) has come out with bleak commentary for the buy now, pay later industry. Its analysts have mapped a 10-year flightpath for the sector, highlighting leading indicators, inflection points and key triggers.  

It believes that Afterpay Ltd (ASX: APT) will face industry consolidation headwinds in the near-term, before a better long-term outlook. The broker has retained a neutral rating with a $120 target for the Afterpay share price. 

At the time of writing, Afterpay shares are up 0.3%, trading at $107.46.

"Pain before gain" 

Macquarie expects the near-term to be a "pain before gain" scenario for the Afterpay share price. Its report studies other industries that have experienced a boom-bust cycle that resulted in the industry emerging healthier in the long-term. 

The report observes trends such as China's autos share price index that increased rapidly from 2016-2018 due to growing wealth levels and government stimulus. 2018 was also when the index logged its first year of negative growth since 1990, with factors such as emerging electric vehicles creating a significant oversupply.

After a two-year consolidation period between 2018 to 2020, the market experienced a significant rebound to return to levels prior to oversupply. Similar trends are observed in China's cement share price index and the more recent resurgence of lithium prices

Looking at the BNPL industry, the Macquarie report said: 

The BNPL industry has seen explosive growth in the past few years and quickly gained popularity as a payment alternative, but as with many other such trends experienced in the past (China Commodities in 2015, China Autos in 2018), we think an excessive number of participants has entered the industry in the near term resulting in industry overcapacity.

We expect this to be followed by a few years of industry consolidation (i.e. pain for all players) before industry normalisation at a healthier supply/demand equilibrium.

What does the long-run look like for the Afterpay share price? 

Macquarie has described the "pain before gain" scenario as a period that typically lasts for 1-2 years, followed by a year or so of recovery before prices eventually return to levels prior to oversupply.  

As for the Afterpay share price, the broker is positive on its long-term outlook and bullish on its recent expansion into Europe. However, acknowledges the near-term pressure the industry is likely to experience.

Over time, the broker believes that "the strong become stronger and the weak get weaker". The consolidation period could see weaker companies either fading out or being acquired by larger BNPL companies. 

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

two colleagues high five each other as they sit side by side at a long desk in front of their laptop computers in an office environment.
Share Gainers

Why Bapcor, Ramelius, Sandfire, and WIA Gold shares are rising today

These shares are having a better day than most on Tuesday. But why?

Read more »

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
Share Market News

Is it too late to invest in the record setting S&P 500 stock gains?

A top broker reveals what to expect next from the surging S&P 500 Index.

Read more »

A young woman holds an open book over her head with a round mouthed expression as if to say oops as she looks at her computer screen in a home office setting with a plant on the desk and shelves of books in the background.
Share Fallers

Why Boss Energy, DroneShield, Greatland, and Viva Energy shares are tumbling today

Let's see why these shares are out of favour with investors on Tuesday.

Read more »

Man smiling at a laptop because of a rising share price.
Broker Notes

4 ASX shares to buy this week: experts

Looking for investment inspiration?

Read more »

Miner and company person analysing results of a mining company.
Energy Shares

Should you buy Boss Energy shares now after Monday's huge sell-off?

Macquarie gives its verdict on Boss Energy shares following Monday’s crash.

Read more »

Excited couple celebrating success while looking at smartphone.
Broker Notes

Macquarie forecasts 28% upside for this ASX All Ords stock

Let's see why the broker is feeling bullish about this name.

Read more »

Woman looking at a phone with stock market bars in the background.
Share Market News

Here's why these ASX 200 shares were the most traded stocks of FY25

Buy/sell ratios provide an insight into what motivated investors to trade these ASX 200 stocks more than any others in…

Read more »

A share market analyst looks at his computer screen in front of him showing ASX share price movements
Broker Notes

What's Macquarie focused on this earnings season?

Here's what the broker is saying about next month's results releases.

Read more »