Are Afterpay (ASX:APT) shares a buy before they convert into SQ2 shares?

Afterpay shares will soon turn into SQ2 shares…

| More on:
A woman with black afro hair and wearing a white t-shirt shrugs and purses her lips

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

The Afterpay Ltd (ASX: APT) share price has failed to build on Wednesday's gains.

In afternoon trade, the buy now pay later (BNPL) provider's shares are down 1.5% to $75.80.

Why is the Afterpay share price falling?

The Afterpay share price is under pressure today following a pullback in the Block (previously named Square) share price overnight.

Yesterday Block received the final approval required to implement its takeover of Afterpay. This means that in a matter of days the Afterpay share price will no longer exist and will instead be absorbed into the payment giant.

The combined company will then have a secondary listing on the Australian share market under the SQ2 ticker code. It is due to commence trade on the ASX on 20 January on a deferred settlement basis before trading normally from 2 February.

Should you buy Afterpay shares before they convert to SQ2 shares?

One leading broker that appears to believe that investors should buy Afterpay shares now is Macquarie Group Ltd (ASX: MQG).

The note, courtesy of the Australian, reveals that its analysts feel there's a buying opportunity here for investors. This is due to their belief that the Square share price is undervalued at the current level.

Macquarie commented: "APT's share price should trade in line with SQ going forward and whilst the story is a bit more complicated now vs when the proposed acquisition was initially announced in terms of the BNPL operating environment, the potential impact to Cash App from waning government payments, and tech multiples coming in on higher rate expectations, SQ shares are still quite undervalued in our view."

US growth slows

Though, it is also worth highlighting that Morgan Stanley estimates that the company's growth in the key US market is slowing.

Yesterday's note reveals that the broker estimates that Afterpay's app downloads grew 10% year on year in December in the US. This was notably lower than its rivals. The broker estimates that Affirm's app downloads grew 90% and Klarna's grew 70%.

However, if Block integrates the Afterpay BNPL service into its Cash App in 2022, which has over 40 million active users, these lagging download rates won't be much of a problem.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Afterpay Limited and Block, Inc. The Motley Fool Australia owns and has recommended Afterpay Limited. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on BNPL shares

A man looking at his laptop and thinking.
BNPL shares

Down 6% in a week, should you buy the dip on Zip shares?

Where to next for the BNPL player?

Read more »

A businessman stacks building blocks.
Technology Shares

Why is the Block share price rocketing 10% today?

Brokers continue to be bullish.

Read more »

A happy girl in a yellow playsuit with a zip gives the thumbs up
BNPL shares

Is this why the Zip share price keeps breaking records?

Zip shareholders have been enjoying a record breaking year. Is this why?

Read more »

A cool dude looks back at the camera while ziplining above the treetops.
BNPL shares

Why is the Zip share price on a rollercoaster today?

Zip shares are now up an eye-watering 670% in a year.

Read more »

Man holding out $50 and $100 notes in his hands, symbolising ex dividend.
BNPL shares

Owners of Zip shares are projected to start receiving dividends in the next few years

An expert is forecasting that passive income could start flowing.

Read more »

woman using affirm to pay
BNPL shares

Are Zip shares a buy following the ASX 200 stock's bumper quarter?

This stock continues to impress.

Read more »

Two happy excited friends in euphoria mood after winning in a bet with a smartphone in hand.
BNPL shares

Why is the Zip share price jumping 10% today?

Let's see what is getting investors excited about this buy now pay later provider today.

Read more »

A happy girl in a yellow playsuit with a zip gives the thumbs up
BNPL shares

Here is the earnings forecast out to 2029 for Zip shares

How much could Zip’s earnings grow in the next few years?

Read more »