It’s a two-Exchange Tuesday, everyone. First up, we’re talking fintech valuations. Next up, we’re digging into Atlanta.
Last week’s news that PayPal intends to buy Japanese startup Paidy marked the second major acquisition of a buy now, pay later (BNPL) company this year. PayPal’s news followed an even larger deal by Square for the Australian BNPL company Afterpay.
The multibillion-dollar exits provided hard market proof that what BNPL startups are building has value beyond simple operating results; major fintech platforms are willing to shell out large sums for their revenues and possible strategic value.
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Because both deals happened in 2021, they provide two data points for the value of BNPL companies operating at scale. And because both Square and PayPal provided some information to their investors concerning their transactions, we have a little bit of comparative work to do.
Let’s do a little math and figure out how much PayPal and Square investors are paying for transaction volume across both platforms. Then, we’ll peek at what Affirm is worth along similar lines. We’ll wrap with a look at Klarna’s numbers to see if there’s anything we can dig up there.
Our goal is to find out what sort of price floor or ceiling the Paidy and Afterpay deals imply, if other players in their space are matching that figure, and why. This will be fun!
What would you pay for $1 of BNPL GMV?
Square’s Afterpay deal is worth some $29 billion, a huge sum. It isn’t hard to see why the U.S. consumer- and business-focused fintech is willing to write so large a check — Afterpay does volume.
Per an investor presentation, Afterpay saw $15.8 billion in gross merchandise volume, or GMV, during its fiscal 2021. That 12-month period ended June 30, 2021, so the data is pretty fresh. Doing some incredibly basic math, Square is paying around $1.84 per dollar of GMV for Afterpay, though that number will change as the deal is not expected to close for some months yet; presumably, Afterpay will continue to grow before closing, deleveraging the deal’s implied cost per dollar of GMV over time.
PayPal’s Paidy deal is smaller. Worth around $2.7 billion, Paidy is on pace to do a fraction of Afterpay’s volume. Per an investor presentation, Paidy was on a $1.5 billion GMV run rate as of July. That works out to $1.80 in acquisition price per dollar of Paidy BNPL GMV.
That number is very close to the Square-Afterpay number, you’ve already noticed. But keep in mind that because the Afterpay deal’s cost was calculated using a trailing GMV number and not a run-rate figure, it’s using a more conservative performance number, which makes it appear more expensive; if we were able to calculate the Afterpay transaction using its July run rate, it would appear less expensive. So, while the two transactions look pretty similar in terms of cost per dollar of GMV, the Afterpay deal is actually a bit cheaper than what PayPal will pay for Paidy.
There’s some sense to that. Smaller companies tend to grow more quickly in percentage terms than larger companies, and investors are willing to pay for growth in today’s market. Presuming that Paidy is growing more rapidly than Afterpay in percentage GMV terms, receiving a slight premium would make sense, all else held equal.
But what about Affirm? After some wild price swings in recent trading sessions, Yahoo Finance pegs Affirm’s worth at $29.44 billion. The company’s calendar Q2 (Q4 fiscal 2021) saw it service $2.5 billion in GMV. That’s a $10 billion GMV run rate, valuing Affirm at $2.94 per dollar of serviced GMV.
Affirm, like Afterpay, is growing quickly. Per Affirm:
Gross merchandise volume (“GMV”) for the fourth quarter of fiscal 2021 was $2.5 billion, an increase of 106%, or 178% excluding Peloton; GMV for fiscal year 2021 was $8.3 billion, an increase of 79%, or 91% excluding Peloton.
In comparison, between the year ending June 30, 2020, and 2021, Afterpay grew its GMV by 113.5%. That’s pretty dang close. So, we’re seeing Affirm break pretty cleanly from the value benchmark set by the two recently announced acquisitions, to its benefit.
Now, Klarna. Per the company’s latest interim report, it saw $20 billion in GMV during Q2 2021, up 66.67% from a $12 billion result in the year-ago quarter. That puts the company on an $80 billion GMV run rate. And Klarna is worth $45.6 billion, per its latest funding round. You can see where the math is going: Klarna is worth 57 cents per dollar of GMV run rate.
But Klarna is growing more slowly in percentage GMV terms than the other companies we’ve looked out — excepting Paidy, for which we lack a related metric — so perhaps the discount is reasonable.
Aggregating our work, there is a range of BNPL GMV multiples to consider:
- Klarna: Lower, growing more slowly in percentage terms, perhaps suffering from a European startup valuation discount.
- Paidy, Afterpay: Middle-tier GMV run-rate multiples, despite divergent volume bases.
- Affirm: More expensive, perhaps due to U.S. focus or its partnership with Amazon.
Investors could easily be valuing Affirm partially in hopes that its work with Amazon scales rapidly in coming quarters. But it seems that BNPL startups can point to the roughly $1.80 per dollar of GMV run-rate metric that Paidy and Afterpay as a reasonable valuation comp, provided that their business is scaling well in startup terms.
And Affirm indicates that there is upside to be had in multiples terms, provided that a startup can secure partnerships that may be able to massively accelerate total addressable market.
No public comp is perfect. No comparison is exact. But the Paidy and Afterpay deals are doing quite a lot to help determine just what the lending volume at high-growth BNPL startups might be worth at exit.
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