Afterpay and Zip suffered a Christmas slump, analysts say, as shoppers joined investors in turning their backs on the BNPL space

Afterpay and Zip suffered a Christmas slump, analysts say, as shoppers joined investors in turning their backs on the BNPL space
Afterpay and Zip suffered a Christmas slump, analysts say, as shoppers joined investors in turning their backs on the BNPL space. Photo: Getty Images
  • Afterpay and Zip each suffered a slump in website traffic and app downloads through the Christmas period.
  • Australian and New Zealand user activity at Afterpay and Zip fell 6% and 11% respectively, year on year.
  • Analysts say it could be an early sign that shoppers are leaving the space, as investor interest cools as well.
  • Visit Business Insider Australia’s homepage for more stories.

Consumer activity at Australia’s two largest buy now, pay later platforms suffered a significant Christmas slump, which analysts say could be an early sign that Australians are plotting exit routes out of the space.

In a note to investors on Wednesday, CitiBank analyst Siraj Ahmed cited superficial, mostly publicly available data that suggested both Afterpay and Zip Co suffered noteworthy hits to website traffic and app downloads over the Christmas shopping period.

According to CitiBank, it’s estimated that visits to Zip’s website from Australian and New Zealand IP addresses fell as much as 11% last month, compared to the December before, while Afterpay suffered a 6% drop.

Downloads tallied for each of the players’ mobile apps, meanwhile, fell as well. Zip recorded a drop of 37% compared to December 2020, while Afterpay was rattled only slightly, with a fall of 2% over the same period.

The same dataset suggested that visits to LatitudePay, which late last week launched a bid to acquire Humm, fell 49% and 17% respectively, but doesn’t account for overall transaction values, which are only available to merchants and the firms themselves.

Ahmed said that while the bank expects transaction values to increase 41% on last year, to $1.3 billion in Australia and New Zealand, its total customer base could come in around 100,000 users lower than market expectations.

As a result, he said, scale has become increasingly important variable in the BNPL sector’s sustainability, particularly as regulators in the US and the UK signal a major payments shakeup.

“Following the Financial Conduct Authority’s review of BNPL in the UK, the US Consumer Financial Protection Bureau last month opened a probe of BNPL products, sending notices to providers seeking additional data,” Ahmed said.

“While increasing regulation is not surprising given the increasing popularity of BNPL, we see the larger-scale players as better-placed given the need to ­invest in the systems and processes to comply with new regulatory requirements.”

A wave of regulatory shakeups around the world — both in the UK and the US, and more recently, in Australia — has been one factor thought to be unsettling investors in the space as well.

Just days before the Bank of Spain gave Block the all-clear on its $39 billion merger with Afterpay, analysts at Morgans suggested a jolting tech sell-off in the US coupled with ramped up regulatory plans could be enough to put pressure on the BNPL space.

Morgans equities analyst Richard Coles said the sector’s dominant players — particularly Afterpay and Zip — would need to deliver strong results in the first half of the year to reverse the sentiment.

“The sector is suddenly unloved by investors, so solid 1H22 results are required to change sentiment,” Coles said. “We expect strong revenue growth for Afterpay and Zip, but we still expect both stocks to report (first-half) losses.”

Ahead of Zip’s trading update later this month, Ahmed said CitiBank expects transaction values at both Afterpay and Zip to swell to $2.4 billion in the second quarter of the 2021-22 financial year.

At close of trading on Wednesday, Zip shares were worth $4 a piece on the ASX, up a menial 2% after a six-month spiral, and are on track to fall again come close on Thursday.

Afterpay shares have been trending south on the local bourse too, despite a 4% bump on Thursday which saw shares close at $77, not far above the BNPL giant’s 12-month low of $71.61.