What did Block buy: Afterpay in numbers
Last month, Block ( SQ ) completed the acquisition of Afterpay, one of the three leading “Buy Now Pay Later” players in the world (the other two being Affirm and Klarna). At the moment of announcement in August, 2021, the transaction valued Afterpay at $29 billion. However, this was an all stock deal, so Block paid under $12 billion given the brutal decline of Block’s share price since the announcement of the acquisition. Let’s break down what Block acquired in Afterpay using company’s latest annual report (for the fiscal year ending June 30, 2021).
One of the key metrics for “Buy Now Pay Later” players is the Gross Merchandise Volume, or the gross volume of sales that merchants generated using particular payment method (there is no standard for the term; thus, Afterpay uses “Underlying sales”, and Block uses “Gross Payment Volume”). In the full fiscal year ending June 30, 2021, Afterpay processed ˜$15 billion in GMV, which was an impressive 90% growth YoY (the number is an approximation, as the company reports in AUD).
For comparison, Block processed close to $140 billion in GVM across its products in the same timeframe, and Affirm processed $8.2 billion in GMV.
As can be seen from the above (don’t forget that the numbers are in AUD!), Block not only bought the “Buy Now Pay Later” capabilities and technology, but also a sizeable footprint outside of the United States. Thus, Afterpay processed ˜$6.7 billion in GMV in Asia-Pacific region, and ˜$1.3 billion in the UK (via Clearpay). In their latest earnings call, Block clearly stated the ambition to expand internationally, and Afterpay provided a jumpstart for this ambition.
Afterpay also reported 16.2 million active customers (customers that transacted at least once in the last 12 months), as well as 98,000 merchants. Afterpay managed to grow the customer base 63% YoY, and their merchant base 77% YoY. It is worth highlighting that 10.5 million active customers were based in the United States.
For comparison, Affirm reported 7.1 million customers at the end of Q2, 2021, and 8.7 million customers at the end of Q3, 2021. Affirm also reported 29K merchants at the end of Q2, 2021, which grew to 102.2K merchant by the end of Q3, 2021 due to the full rollout of their partnership with Shopify.
Following closing of the transaction, Square launched integration with Afterpay, allowing Square Sellers to offer “Buy Now Pay Later” at online checkout. This should boost the number of merchants using Afterpay quite rapidly.
Afterpay reported $657 million income for the year (AUD 924.7 in the table below), as well as the loss after tax of $113.4 (AUD 159.4 in the table below). In the same period, Affirm generated $870.4 billion in revenue (of which $429 million in “network fees”), and $430.9 million in net loss. The key difference between Afterpay and Affirm is that Afterpay does not earn interest income (though they assume credit risk), as their customer occur no fees or interest on payments (i.e. Affirm generated $441 million in interest income, gain on loan sales, and loan servicing fees).
In summary, in Afterpay, Block acquired a “Buy Now Pay Later” player that is roughly two times bigger than Affirm in terms of the Gross Merchandise Value and Active Customers. Affirms reports higher number of merchants due to its partnership with Shopify, but Afterpay integration with Square’s Seller ecosystem is expected to quickly boost Afterpay’s merchant base. The rivalry between Square and Affirm has intensified, and this will be even more fun to follow.