Alternative Metrics, page-4944

Hi @Trevor2017, in my opinion the results across the board (APT, Z1P, SZL and Klarna) are reflective of an increasingly competitive environment. There has been a significant escalation in credit costs probably reflecting a more stretched consumer coupled with a loosening of underwriting standards - whilst APT also experienced higher credit costs, they remain the best in class on this measure, with the gap to the competition widening considerably over the past 6 months.

For Afterpay specifically, their credit costs were $30m higher than my forecasts, marketing also +$30m and other expenses +$20m, so their underlying EBITDA was ~$80m below my expectations. Given the environment and what the competitors have reported, I can understand the cause, with a real acceleration in the land grab push currently unfolding. IMO the tie up with Square couldn't come at a better time as it really gives Afterpay all of the tools required to become the global no.1 BNPL company over the next 2-3 years.

Zip's result was mixed, with credit costs a big negative, but updated trading showing very positive signs. I see Zip as being on a low valuation with a decent likelihood of takeover in the next 12 months (I believe the rumours that Klarna has bought a stake will prove to be correct).

Klarna is the real interesting one. Their "valuation" has sky-rocketed over the past 12 months, while at the same time their P&L has deteriorated significantly. It looks like they are throwing everything bar the kitchen sink at their efforts to compete with Afterpay (in particular) and whilst this is giving them some decent headline numbers it is coming at an enormous cost. It will be really interesting if they do list in the near future as it will provide an opportunity to have a proper look under the bonnet of this company.

My feeling is that the over the next 2-3 years the competitive environment will remain intense and that most of the smaller/weaker players will get gobbled up or fall by the wayside.