The Afterpay Ltd (ASX: APT) share price had a fantastic day today. Afterpay shares closed the day up by 7.53% at $115.26. However, if you pull back just a little bit, the picture is not nearly as rosy. Afterpay shares are still down around 25% over the past month after making a new all-time high (of $160.05 a share) back on 10 February.
Afterpay’s rival Zip Co Ltd (ASX: Z1P) hasn’t been so lucky. Zip shares dropped 3.87% today to $8.44. Over the past month, Zip has lost a hefty 21.5%, and more than 40% since reaching a new all-time high on 16 February.
As we discussed earlier today, Zip shares haven’t been feeling the love from several brokers in recent weeks, with UBS slapping a sell rating on Zip just this morning.
It also seems to be the case that sentiment from the US in regards to the tech sector over there has been spilling into the ASX. Some itchy investors might have been quite keen to get some of their profits off of the table as well, given the success these companies had earlier in the year.
BNPL competition heats up
But perhaps another threat is also emerging: competition.
At least until now, it could be said that investors are treating buy now, pay later (BNPL) as a magic pudding of sorts. Since it’s such a high growth area, most new entrants into the space have been arguably awarded very generous valuations and scope by the market.
But perhaps this sentiment is drying up. BNPL, despite being a high growth area, is also a relatively low-margin business. Each BNPL company clips the ticket on transactions going through its network, helped of course by some late fees along the road. But as competition increases, these margins might be whittled down to a level more similar to that of the debit card space.
We already know that the ASX BNPL space is a little crowded. We have Afterpay and Zip, as well as others like Splitit Ltd (ASX: SPT), Openpay Group Ltd (ASX: OPY), Humm Group Ltd (ASX: HUM) and Laybuy Holdings Ltd (ASX: LBY). Then there’s Commonwealth Bank of Australia (ASX: CBA)-backed Klarna, as well as American Express Company‘s (NYSE: AXP) new instalment feature.
And, according to a report in the Australian Financial Review this morning, US e-commerce giant PayPal Holdings Inc (NASDAQ: PYPL) will also finally be rolling out its ‘pay in four’ instalments option for Australians in June. It announced this new feature last year.
That’s a group of companies that will have the potential to deliver a massive amount of competitive pressure to the entire sector. No wonder some investors are getting jittery!
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More reading
- Early Yallourn power station closure sets the pace for ASX energy sector shakeup
- ASX 200 drops, Zip down, Afterpay soars
- Here are some of the best performing ASX tech shares today
- Why Accent, Fortescue, Western Areas, & Zip shares are tumbling lower
- Could this be why the Zip (ASX:Z1P) share price lost all its gains today?
Sebastian Bowen owns shares of American Express. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO and ZIPCOLTD FPO. The Motley Fool Australia has recommended Humm Group 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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