In this video, I will be talking about Block's (SQ 5.04%) Afterpay part of the business. In its first set of results since being taken over Block, Afterpay recorded a huge net loss. You can find the video below, but here are some highlights.
- At the time of the purchase, Block's projected growth was 70%, but this was cut to between 25% and 30%. -- a big decrease considering the premium it paid for Afterpay.
- During the first half of full-year 2022, Afterpay's poor performance included $176 million in bad debts, which was much higher than the $72 million of a year ago.
- Operating expenses are up nearly 287%, from $63 million to $212.3 million.
- The better news is that Afterpay's income increased by 55% to $645 million.
- Afterpay is free to use. You can use it via the app or directly at checkout if that option is offered. It makes money through late fees. If you don't pay on time, you pay a late fee of up to $8. If you continuously make delayed payments, the total sum of the fees is capped at 25% of the order's value.
- Competing service Affirm does not impose late fee payments, but you do pay interest on your purchase. This means that you know upfront exactly how much you will be paying.
- Not everybody can use Afterpay. If you have used it in the past and have a good track record, you should be fine. But if you have a bad one, your request will probably be declined.
- The big concern is what will happen when these buy now, pay later companies become buy now, pay never. No one wants a repeat of the 2008 financial crisis.
- Afterpay might conduct a soft credit check, but this doesn't affect credit scores.
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*Stock prices used were the closing prices of April 14, 2022. The video was published on April 18, 2022.
