Afterpay fell 12.4%, Zip Co Ltd dropped 17.7% and Sezzle Inc was down 15.5%
Shares in Australia’s Afterpay Ltd and its smaller consumer lender rivals tumbled for a second day on Wednesday, as the entry of U.S. giant PayPal into the buy-now-pay-later sector sent investors scrambling to re-price its frothy stocks.
Afterpay fell as much as 12.4%, before paring losses, and has shed about A$2.6 billion ($1.9 billion) in market value in the two trading sessions since PayPal Holdings Inc said it would offer small, short-term loans to U.S. customers.
Rivals also tumbled, with Zip Co Ltd dropping as far as 17.7% and Sezzle Inc 15.5% before both trimmed losses. They have each shed roughly 20% in two days. Openpay Group Ltd and Splitit Ltd each fell about 7%.
The broader market rose 2%.
Having such a large customer base already in the U.S., PayPal certainly throws a spanner in the works for their expansion plans, said James Tao, a market analyst at CommSec in Sydney.
Afterpay and other alternative credit firms, which offer small instalment loans to shoppers and make money by charging merchants a commission, are riding the boom in online shopping that has been sparked by the coronavirus pandemic.
A 900% rally in Afterpay’s share price since March has catapulted the company into Australia’s top 20 largest listed firms, even though it has never turned a profit.
The United States is regarded as the sector’s largest growth market and is a key focus for most of the Australia-listed buy-now-pay-later (BNPL) companies.
PayPal’s U.S. offering is a fee and interest-free loan for purchases between $30 and $600, repayable in four instalments over six weeks. That is broadly similar to Afterpay’s product.
The companies have sought to reassure investors and downplayed the potential impact of PayPal on their businesses.
Afterpay co-founder Anthony Eisen said in a statement that competition “from traditional and newer players” would not change the company’s strategy “or diminish our global opportunity”.
The chief executives of Zip Co, Sezzle and Splitit, in separate statements, said broadly they were prepared for competition in the sector and that PayPal’s entry underscored its relevance and potential.
Michael Smith, director of Kauri Asset Management in Sydney, which owns Afterpay stock, said the sector had already survived last year’s entry of Visa Inc (V.N) and was well placed.
Kauri has a small allocation in next week’s sought-after listing of yet another BNPL company, Laybuy Group Holdings Ltd.