- Buy now, pay later company Splitit (SPT) deepened its annual loss over 2019 by a hefty 362 per cent
- In 2018, the company lost $7.1 million compared to a loss of $33 million in 2019
- The loss comes in spite of increased revenue and more merchants using the Splitit platform
- Figures like this are not unusual for the buy now, pay later sector, however, as companies rapidly expand and spend far more than they earn
- Splitit is at risk of falling victim to a Visa monopoly as the credit card giant starts to offer the same services provided by Splitit
- Today, Splitit shares have fallen almost 11 per cent to 38 cents each
- Since January 25, when new Visa guidelines came into effect, Splitit shares have lost almost 42 per cent
Young fintech company Splitit (SPT) is joining its buy now, pay later (BNPL) posse in posting deepened losses in its latest financial report.
Joining the string of fintech companies reporting their annual and interim reports this week, Splitit revealed its full-year net loss from January to December 2019 was US$21.47 million (A$32.84 million). This is a whopping 362 per cent higher than 2018's US$4.64 million (A$7.1 million) loss.
The loss comes in spite of doubled revenue over 2019, which came in at a record US$1.65 million (A$2.52 million) and a 52 per cent increase in annualised merchant sales volume.
On top of this, total active merchants increased almost twofold over 2019, with 720 merchants making use of Split's payments platform compared to 2018's 380.
Figures like this, however, are not unusual for the BNPL sector which has taken the finance world by storm in recent years.
Buy now, profit later
Afterpay (APT) and Zip Co (Z1P) released their interim reports yesterday. Afterpay — the poster-boy for the BNPL sector — more than doubled half-yearly income, while its net loss deepened by 43 per cent.
Zip Co, the second-largest BNPL stock on the ASX, pulled in more than 104 per cent in extra income over the last half-year while net losses increased 349 per cent.
The companies are rapidly expanding — hence the hefty spending — but investors are starting to worry about how sustainable it is for these companies to continue operating at a loss.
With regulation talks making their way around the Australian Securities and Investments Commission (ASIC) and the Reserve Bank, shareholders could be running out of time to cash in off the sector.
Splitit in the Visa firing line
Splitit's BNPL service differs from that of its competitors in that it allows customers to use their existing credit limits to pay off purchases in interest-free instalments. With Splitit, there is no need for additional registrations or applications — buyers can make use of the platform through their existing credit cards.
While Splitit touted this unique payment solution in its annual report as a window into an "under-served and large global market opportunity", it may leave it more vulnerable than its competitor's to Visa's plans to break into the BNPL world.
The credit card giant announced its plans to join the BNPL party in late June 2019, and in December released a new set of guidelines for U.S. consumers that rivals the Splitit offering.
When Visa announced its BNPL plans in June, Splitit's share price fell by 25 per cent in three days.
And since Visa's new policies came into effect on January 25, Splitit shares have fallen over 42 per cent.
Nevertheless, Splitit CEO and Managing Director Brad Paterson seemed unphased by the Visa monopoly threat, saying a "foundational" 2019 has set up some strong momentum for future global growth.
"In the second half of the financial year, revenue grew at a faster rate than merchant volumes as we saw stronger demand for our more lucrative funded model," Brad said.
"The growth rate in active shoppers reflects our deliberate shift towards merchants with higher average order values and in verticals more suited to our product," he said.
According to Brad, Splitit has intentionally cut ties with merchants who process high transaction volumes but low average order volumes to keep growth consistent.
Looking ahead, Splitit seems confident new partnerships and a streamlined merchant onboarding process will help the company expand further.
While no financial guidance was given in today's annual report, Brad said 2019 was a year of investment and set the company up to build "significant scale" in 2020.
"With a refined and focused strategy and our foundational pillars largely in place, we expect to see MSV and resulting revenue accelerate rapidly as we shift our focus to executing on our go-to-market plans and continuing to deliver amazing experiences to our customers," he said.
Nevertheless, Splitit shares declined 10.71 per cent today, worth 38 cents each in mid-afternoon trade. Of course, on a day like today, it's hard to tell if the share price slump is the result of unimpressed investors or simply due to the ASX's mass sell-off as the Covid-19 coronavirus causes global economic panic.
Time will tell if Splitit can hold its own against the Visa giant and if the company can continue to survive without profits.