Tumbling share prices and industry consolidation: this probably isn't how most ASX buy now, pay later (BNPL) investors pictured it playing out. In 2021, ASX BNPL shares such as Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) severely underperformed the broader Aussie market — so is the party over?
The days when Australia's BNPL companies were the market darlings of the ASX seem a distant memory now. Rather than gaining more excitement in the last year, the sector attracted heightened scepticism.
For investors, the last year marked a clear shift in sentiment towards the once idolised credit disruptors. Afterpay recorded its first negative share price return since being listed, falling nearly 30%. Similarly, the Zip share price dealt shareholders their first negative return since 2017, shaving off 18%.
What could be ahead for ASX BNPL shares?
Despite the pullback in share prices, there are a number of experts who still aren't so keen on ASX BNPL shares. This would suggest these companies remain stuck in a more pessimistic light currently.
Morgans analyst Richard Coles is one of the numerous spectators that envisions tougher times ahead for BNPL companies. In a broker note, the analyst outlines several risk factors to Afterpay specifically. These include slowing sales momentum, margin compression from competition, overseas expansion risk, bad debts, increased funding costs, and regulatory pressure.
For these reasons, Morgans slashed its price target on Australia's biggest BNPL company to $91.49 from $132. Likewise, the broker revised its Zip price target to $7.54 from $8.56 on lower earnings per share (EPS) expectations.
These concerns mirror those of payments industry expert Gran Halverson. As we covered back in December, the founder of payments consultancy company McLean Roche is mindful of a bumpy path ahead for ASX BNPL shares. In turn, Halverson suspects another challenging year for the payment companies in 2022.
On the flip side
According to a forecast published by Juniper Research, the long-term picture for ASX BNPL shares may not be so much doom and gloom. In its June 2021 Buy Now Pay Later: The Future of Ecommerce whitepaper, the research firm estimates that fixed instalment plans and flexible credit accounts will reach $995 billion globally in 2026. At present this figure sits around $266 billion.
Unlike Coles and Halverson, Juniper believes regulations won't stifle the appeal or growth of BNPL platforms. In fact, the whitepaper highlights that an expected 24% of global eCommerce transactions for physical goods will be conducted via BNPL services by 2026.
At the time of writing, Afterpay shares are down 9.4% to $72.94. This follows an 8.2% fall in the Block Inc (NYSE: SQ) share price overnight.
