Azzet reports on two Buy Now Pay Later (BNPL) stocks in the news today.
Block crashes on lower guidance
Chess Depositary interests in Afterpay owner Block (ASX: XYZ) were down by as much as 33% at the open after the payment giant released a disappointing first quarter update that also slashed its outlook for the rest of the year.
Today’s fall follows a 19% drop during after-hours trading on Wall Street overnight.
Due to changes in consumer spending, the parent company of Cash App and Square posted 1Q FY25 profit of US$189.9 million, or US30 cents a share, compared with US$472 million, or US74 cents last year.
At US56 cents, adjusted earnings fell way short of analysts' US97 cents.
At US$5.77 billion, revenue has also underperformed against analysts’ expected US$6.19 billion and last year’s US$5.96 billion.
Management has revised expectations for gross profit margins year-on-year from 15% to 12% and expects 9.5% growth in gross profit to US$2.45 billion in the second quarter.
CEO Jack Dorsey was quick to advise the market that the downgraded earnings guidance reflects a more cautious macro outlook for the rest of the year.
President Donald Trump's trade policies have sparked concern about consumer spending, which comprises more than two-thirds of U.S. economic activity.
"Non-discretionary Cash App Card spend in areas like grocery and gas was more resilient, while we saw a more pronounced impact on discretionary spending in areas like travel and media," Chief Financial Officer Amrita Ahuja told the market today.
However, Dorsey expects Cash App’s gross profit growth, and the Block's overall, to accelerate in the third quarter.
Following today’s $1.7 billion value fall, Block’s market cap is $3.9 billion making it an ASX200 stock. The share price is down 33% over one year and down around 50% year to date.
Shares of the stock appear to be in a strong near-term rally within a long-term bearish trend that has been going on for some time.
Consensus does not cover this stock.
Zip Co falls into Block's downdraft
Despite its remarkable 45.4% share price rally from 7 April, boosted by a favourable third-quarter update, and news of a $50 million on-market share buyback, BNPL rival Zip Co (ASX: ZIP) appears to have been dragged down by Block’s dismal result today.
The stock’s share price was down around 7% in afternoon trading.
Block’s update has clearly reminded investors of the impact Trump's tariffs could have on Zip's primary consumer markets of the U.S., Australia, and NZ, and potentially lead to higher interest rates.
However, deteriorating market conditions were not evident in Zip’s 3Q update.
The company reported a 36% year-on-year increase in quarterly total transaction value (TTV) of $3.3 billion.
Total income of $279 million was up 27%, while earnings surged 219% from the previous quarter to $46 million.
While Zip upgraded its full-year FY 2025 guidance – with management now expecting to deliver cash earnings of at least $153 million – investors may now question this outlook in light of Block’s downgrade.
Zip Co has a market cap of $2.1 billion; the share price is up 30% over one year and down 45% year to date.
Zip’s shares appear to be in a long-term bearish trend confirmed by multiple indicators.
Consensus is Strong Buy.
This article does not constitute financial or product advice. You should consider independent advice before making financial decisions.
