Down the Road

Why pay today, when you can wait till tomorrow -- or a month from now. That idea has been driving investor interest in the so-called "buy now, pay later" business. The online payment service pioneered by Affirm Holdings and others has been embraced by consumers tired of dealing with credit cards, interest payments, and late fees. Affirm and its rivals allow customers to pay for items with installment plans that often carry zero interest, at least for a few months. 

The business model works, in part, because Affirm takes a small cut of the sales it is helping to facilitate. Peloton Interactive, for instance, gives Affirm a slice of its stationary bike sales when someone makes a payment using Affirm. Morgan Stanley has estimated that Affirm's fee averages around 6% of each sale. 

Back in April, my colleague Daren Fonda highlighted the opportunity for the buy now, pay later stocks. Sure enough, shares of Affirm and rival Afterpay were up big today, after Afterpay agreed to be bought by Square, another one-time financial services upstart. Square is paying $29 billion in stock for Afterpay, whose shares rose 35% on the news. Square was up 10%, an unusually large bump for an acquiring company's stock.

Affirm, meanwhile, was up 15%, as the deal spurred talk of additional potential mergers. 

In covering today's news, Daren noted that Wall Street analysts were bullish on Square's acquisition, even if it's spending almost $30 billion to make it happen: 

Mizuho’s Dan Dolev also praised the deal, writing that it moves Square further into the $10 trillion global online payment market and should lift gross revenue for the company. He said it would add $32 in average revenue per user. While the price isn’t cheap, he wrote, the long term benefits “outweigh near-term valuation concerns.”

Dolev also sees the deal helping Square further its other ambitions: to develop payment systems in cryptocurrencies like Bitcoin and the broader ecosystem of decentralized finance on blockchain networks.

Bitcoin is already a huge sales driver for Square, which acts as a broker and custodian for the crypto. The company’s total revenue of $4.7 billion in the quarter was up 143% year over year. Without Bitcoin, the figure was up 87% at $2 billion.

“We believe Afterpay makes long-term fundamentals stronger, as SQ inches closer to becoming the JPM of the future,” he wrote, referring to JPMorgan Chase.

You can read the rest of Daren's story here.