Why the Afterpay Ltd (ASX:APT) share price is falling again

The Afterpay Ltd (ASX: APT) share price is falling again today, down 1.72% in early afternoon trading.

The Australian buy now, pay later (BNPL) star saw its share price peak on 25 August at $92.48 per share. That represented an astonishing 939% gain from its 23 March lows and a 202% year-to-date gain.

Although Afterpay’s share price is now down 22% from its 25 August all-time highs, investors who bought shares on 2 January are still sitting on a healthy 135% gain.

Afterpay is part of the S&P/ASX 200 Index (ASX: XJO). By comparison the ASX 200 is down 12% since 2 January.

What does Afterpay do?

Afterpay is an Australian incorporated technology company and a leader in the BNPL market. Afterpay’s payment platform allows consumers to purchase and receive goods and spread the cost of their purchase out over equal payments, without any interest fees.

The company was founded in 2015. Afterpay shares first began trading on the ASX in June 2017. These days, the company operates in Australia, the United States and the United Kingdom, with current expansion plans into the wider European market.

Why is the Afterpay share price falling?

The Afterpay share price is being hit from several sides.

First, technology shares as a whole have come under pressure following a tremendous run higher after the COVID-19 market rout in March.

In the United States the NASDAQ-100 Index (NASDAQ: NDX) – containing the biggest 100 tech-oriented shares – is down 11% since last Wednesday, 2 September. The Apple Inc. (NASDAQ: AAPL) share price is down 16% from 1 September and the Tesla Inc (NASDAQ: TSLA) share price is down 34% from 31 August.

Atop the wider selloff in tech shares, Afterpay is also seeing an increasing potential for competitors to steal some of its market share.

On 1 September, industry giant PayPal rattled Afterpay investors when it announced it will be launching its own BNPL platform in the US, called pay-in-4.

And it’s not just PayPal. Commonwealth Bank of Australia (ASX: CBA) also want a piece of the ‘pay in interest free installments’ action. Earlier this year, Commonwealth invested $411 million in Klarna, a Swedish based BNPL competitor.

Topping it off, all the BNPL players in Australia – of which Afterpay is by far the largest – are facing increasing government scrutiny as legislators debate whether they should be subject to responsible lending regulations.

This might see some of the smaller ASX BNPL shares squeezed out of the market or subject to takeover. But with a market cap of $21 billion, Afterpay is likely here for the long haul. And while its share price is falling today, longer-term this is a company to keep your eye on.

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Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple and Tesla. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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