Jack Dorsey stands by Afterpay deal despite BNPL bloodbath

Jack Dorsey stands by Afterpay deal despite BNPL bloodbath

In the earnings call, Block said Afterpay’s loan losses had improved slightly, though competition was intense, and it remained closely focused on managing the risk of bad debts in a weakening economy.

Block shares were down 5.5 per cent to $119.10 on the ASX after the company’s total transactions were weaker than expected.

Dorsey’s planned creation of a financial “super app” – a term sometimes used to describe China’s WeChat Pay – is designed to allow it to offer customers a number of products through a single offering.

“It really has to do with how much utility we’re offering, so we’re not just focused on one thing such as peer-to-peer transaction, investing, or bitcoin, or lending, but it is a place, one place you can do all those things,” Dorsey said.

“We see peers in other industries in other spaces, and other countries that have done that very well, which are sometimes referenced as super-apps or neo-banks. We believe that over the long term, that is the right strategy.”

While Block’s initial takeover of Afterpay was worth $US29 billion ($39 billion) when launched a year ago, the value of the deal had fallen by the time it was finalised, due to falls in share prices.

Block’s accounts show the company paid $US13.8 billion in shares for Afterpay when the deal closed in January this year, and $US11.6 billion of what it acquired is classified as goodwill.

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The company’s chief financial officer, Amrita Ahuja, responded to a question about Block’s ongoing accounting of the goodwill in afterpay by saying the company assessed value periodically.

Block reported a net loss of $US208 million for the June quarter, while the company’s measure of earnings adjusted before interest, tax, depreciation, and amortisation were $US187 million. It said Afterpay contributed $US208 million in revenue.

RBC Capital Markets analyst Daniel Perlin said Block’s revenue trends were encouraging, but he highlighted a slowdown in the growth in Block’s gross payment volumes.

Meanwhile, a report from Fitch Ratings on Friday predicted growing challenges for the BNPL sector, pointing to rising inflation in the US and the waning effect of COVID-19 stimulus payments from the government.

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