Why the Afterpay (ASX:APT) share price has tanked 20% in December

a man clasps his hand to his forehead as he looks down at his phone and grimaces with a pained expression on his face as though receiving bad news.

The Afterpay Ltd (ASX: APT) share price is having a month to forget in December.

Since the start of the month, the payments company’s shares have lost 20% of their value and are currently fetching $86.65.

This compares very unfavourably to the 52-week high of the Afterpay share price of $160.05.

Why is the Afterpay share price tanking in December?

The weakness in the Afterpay share price this month has been driven by a couple of things.

One is that shareholders have voted overwhelmingly in favour of the Block (previously named Square) takeover. That transaction will see shareholders receive a fixed exchange ratio of 0.375 shares of Block for each Afterpay share they hold on the record date.

This transaction means the Afterpay share price is intrinsically linked to the Block share price, which is the second reason for the December weakness.

The Block share price has been sold off in December and is down 21% month to date, which has negatively impacted the value of the takeover. This appears to have been driven by weakness in tech stocks, concerns over regulatory risks in the US buy now pay later market, and a sharp pullback in cryptocurrency prices. Block has made significant investments in Bitcoin over the last 18 months.

Where next for Afterpay’s shares?

As mentioned above, where the Afterpay share price goes next will depend entirely on where the Block share price goes.

Unfortunately, Block’s poor form has continued during overnight trade, leading to its shares falling 3% to US$163.27. This means its shares are now trading within touching distance of their 52-week low.

Afterpay shareholders will no doubt be hoping 2022 is far more positive for both sets of shares and particularly after the latter absorbs the former early next year when the takeover completes.

The post Why the Afterpay (ASX:APT) share price has tanked 20% in December 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 and has recommended Afterpay Limited and Block, Inc. The Motley Fool Australia owns and has recommended Afterpay Limited. 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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