The Afterpay Ltd (ASX: APT) share price is likely to come under pressure on Friday.
This follows a negative reaction on Wall Street to the release of the third quarter results of Square, Inc (NYSE: SQ).
Why could the Afterpay share price tumble?
The Afterpay share price could tumble today after a pullback in the Square share price overnight following the release of its third quarter update.
As Square is acquiring Afterpay via an all-scrip deal, the value of the takeover price rises and falls with the Square share price.
Investors were selling Square shares in after-hours trade due to its revenue falling well short of analyst expectations during the quarter. Square’s total net revenue came in at US$3.84 billion, down from US$4.68 billion in the second quarter and short of the analyst consensus estimate of US$4.48 billion.
Similarly, Square’s adjusted EBITDA fell quarter on quarter to US$233 million from US$360 million.
What does this mean for the takeover?
At the time of writing, the Square share price is fetching US$235.80 in after-hours trade.
Afterpay and Square have agreed a deal that will see Afterpay shareholders receive a fixed exchange ratio of 0.375 shares of Square Class A common stock for each Afterpay share they hold.
Based on the current Square share price and the latest exchange rates, this equates to a takeover price of $119.43.
This is actually lower than the Afterpay share price of $124.38 at the close of play on Thursday, which doesn’t bode well for today’s trading session. Particularly given how shares will often trade at a discount to the takeover price to account for uncertainties and such events like this.
Though, it is worth noting that after-hours trade often represents a bit of a knee jerk reaction from investors. There’s always a chance that Square’s shares could reverse these declines once the market reopens and brokers have fully digested the result.
The post Afterpay (ASX:APT) share price set to tumble after Square’s shares sink appeared first on The Motley Fool Australia.
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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 shares of and has recommended AFTERPAY T FPO and Square. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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