As the e-commerce market grows, startups are racing to help online retailers sell larger items to consumers with so-called “buy-now-pay-later” options. Via BNPL, consumers turn a one-time purchase into a limited string of regular payments.
Terms vary, but the space is very active. TechCrunch covered Scalapay’s January $48 million round, what the Italian BNPL described as a seed round. Also this year, we’ve seen France’s Alma raise a $59.4 million Series B for its BNPL efforts. And I recently covered Wisetack’s aggregate $19 million fundraise as it looks to make more noise about its service that focuses on real-world transactions like home improvement.
But unlike some burgeoning startup niches where we lack visible results from leading players to use as a lens for vetting the market, we do have a number for the BNPL space. This morning, to better understand what’s going on with the younger companies hoping to help you finance your next mistaken purchase, let’s check out earnings results from Klarna, Afterpay and Affirm.
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Klarna, based in Sweden, is said to be considering a direct listing. Its 2020 results are here. Afterpay, based in Australia, went public a few years ago. Its H1 fiscal 2021 results are here. And then there’s Affirm, the recently public U.S.-based BNPL company that had a recent direct listing. Its fiscal Q2 2021 (calendar Q4) results are here.
Let’s see how the three are doing, yank learnings for the mix and then check our gut about what their results might mean for BNPL startups the world ’round.
BNPL results
The BNPL cohort of startups is showing signs of pursuing verticalization to find veins of market demand that remain untapped by the largest players in their market. So, while Affirm wants to check you out everywhere online, providing you with repayment options wherever you travel digitally, Wisetack wants to integrate with a particular set of merchants. The latter model could provide startups pursuing similar, narrower market targets the ability to better understand their economics and perhaps generate more total margin on their loans.
That’s a long way to say that even with the information at our disposal, we’re thinking directionally. But doing so is both good fun and illustrative, so let’s get into it. First, Klarna.
Klarna
This morning we’ll look at Klarna’s Q3 2020 report and its Q4 report from the same year.
The gist is that Klarna had a super-solid 2020. In its Q3 update, Klarna wrote that it saw 43 percent growth in gross merchandise volume during the first nine months of the year. In its Q4 report, it noted a full-year number of 46 percent GMV growth. From that, we can intuit that Klarna had a great fourth quarter.
Turning to the U.S. market, Klarna first reported “10 million total consumers by [the Q3] period end, and 11 million by the end of October.” And for the full year, it wrote that it had seen “15 million consumers choosing to shop with Klarna by January 2021” in the United States. Again, those look pretty great.
For the full year, Klarna made more money than ever, with its operating income rising to just under $1.1 billion off of $46 billion in GMV, or goods sold via the Klarna financing system.
Reading the rest of the Klarna note on its performance indicates how far it anticipates the BNPL model to spread. It’s talking about real-world shopping and even more partners. So, growth could continue as Klarna continues to expand its purview.
Affirm
Today we’re just looking at Affirm’s latest earnings report, which you can read here. The company’s second quarter of its fiscal 2021 corresponds to our calendar Q4 2020, so we’ll refer to the period by its calendar equivalent from here on out. Notably, after reporting better-than-expected results in the period and guiding above consensus, Affirm’s stock fell when it dropped its first public earnings. Why? It seems that some investors had expected even stronger beats than the company could manage.
But Affirm still grew well, posting GMV of $2.1 billion in Q4 2020, up 55 percent from Q4 2019, leading to revenues of $204.0 million, up 57%, an operating loss of $31.7 million, a 3% improvement, and a near-breakeven adjusted loss. For the coming quarter, Affirm is anticipating $1.80 billion to $1.85 billion in GMV, revenues of $185 million to $190 million and an adjusted operating loss — what a metric! — of around $50 million.
So we can quickly see that Klarna is a more profitable beast than Affirm and is far larger in terms of GMV. (Perhaps we can be rude and simply consider GMV as BNPL market share, where your portion is simply the fraction of total volume your company represents in any particular period? Fun!)
But as MarketWatch noted, Affirm is guiding better than the market had anticipated:
The company forecast fiscal third-quarter revenue of $185 million to $195 million, while analysts were projecting $189 million. Affirm expects gross merchandise volume of $1.80 billion to $1.85 billion, above the FactSet consensus, which called to $1.75 billion.
For the full fiscal year, Affirm called for $760 million to $780 million in revenue and $7.25 billion to $7.35 billion in GMV. Analysts were expecting $747 million and $6.79 billion in GMV.
So while Affirm is not as big or profitable as Klarna, it does have some good things going for it as well. Another general positive mark for the BNPL market’s aggregate consumer and corporate adoption cycle.
Afterpay
Luckily for us, Afterpay just dropped its H1 fiscal 2021 results. That’s the six-month period that closed out calendar 2020.
Its results, as you have probably guessed, were pretty darn good. Compared to its year-ago equivalent (calendar Q3 and Q4 2019), “underlying sales,” or GMV, rose 106 percent to AU$9.8 billion. Active customers rose 80 percent to 13.1 million, active merchants advanced 73 percent, and the company improved its take rate (“Afterpay Net Transaction Margin as % of Underlying Sales”) to 2.2% from 2.1%.
The result of all of that was rising revenue (“income”) to AU$374.2 million, up 108 percent, and adjusted EBITDA of AU$47.9 million, sharply higher than the year-ago period. Its more traditional losses did rise, and the company is looking to raise more capital. But as a general bent, Afterpay is yet another BNPL player that is going broad and wide — and growing thanks to its efforts.
So what?
You just burned through a thousand words on earnings results. Well done. But what do the collected numbers mean for startups in the market? I think the following:
- The BNPL model is resonant with global consumers. This could mean that regional players in yet-underserved markets can run a pretty strong game in their locale, perhaps finding liquidity to one of the more dominant global players in time. And it underscores how large BNPL activities could become globally.
- The large BNPL players are doing a great job at expanding their market reach; startups may be able to combat this by going niche. I was surprised to read about how focused European Klarna and Australian Afterpay are on international expansion. This implies that there is less space than before in the BNPL market for another generalist. But Wisetack’s model could show that there is niche or vertical space left to still attack with BNPL methods in different markets.
- Private investors are not betting on air. The BigCo BNPL results are very impressive, even with an e-commerce tailwind. Investors are placing wagers as if there is still enough space in the market for more players to win. We will see, but you can’t mock the deals because there is ample evidence of widespread consumer demand for the model.
- And, finally, I had no idea how small Affirm was compared to some of its rivals. Wild.
Feel free to hit me up with BNPL news; I might do a roundup in time. Onward!
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