The cash grab continues for the red hot buy now, pay later sector with Splitit announcing its second capital raising in three months on Monday.
The credit card-based buy now, pay later provider has yet to release details of the share sale, but it will be raising money under vastly different circumstances to the $16 million it raised in April at 41¢ a share when the sector had crashed amid the COVID-19 uncertainty.
Splitit shares last traded at $1.36, but peaked at $1.70 last month as the sharemarket rewarded buy now, pay later providers and other online players such as Kogan, that have reaped the rewards as customers move their spending online during the pandemic.
Afterpay got in early, raising $1 billion from the market nearly a month ago as its founders, Anthony Eisen and Nick Molnar, sold $250 million worth of stock. The duo sold about $100 million in shares last June.
After hitting a low of about $8.90 in late March, Afterpay’s share price has skyrocketed more than 660 per cent, valuing the company at nearly $20 billion and defying analyst and investor expectations and ongoing financial losses.
“Although the buy now, pay later industry is growing strongly, industry firms have made losses over the past five years and will likely continue to do so in 2020-21. While losses as a share of revenue are declining, the industry has yet to achieve profitability,” said IBISWorld senior industry analyst Yin Yeoh.
Revenue for the sector is expected to rise by 9.1 per cent in 2020-21 to $741.5 million, according to IBISWorld.
Minneapolis-based Sezzle followed Afterpay with an $86 million cap raising last month at $5 a share after its stock rocketed more than 1300 per cent since its March low. The stock, which touched a low of 37¢that month, spiked above $9 in July.
In a trading update last week, Splitit told shareholders it had liquidity of $US58.1 million ($81.3 million), including $US25.7 million in cash and $US32.4 million in undrawn loans.
However, revenue for the second quarter was just $US2.4 million and it continues to burn through cash. The company used $US27.2 million in operating cash flow, most of which was used to fund merchant receivables.
Flexigroup dampened the sector’s heat last week with its announcement of a $31 million COVID provision relating to expected increases in unemployment over the coming year.
“The increased macro overlay provision is a necessary and prudent step as we continue to manage the continued economic uncertainty as a result of COVID-19,” Flexigroup chief executive Rebecca James said.
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Colin Kruger is a business reporter. He joined the Sydney Morning Herald in 1999 as its technology editor. Other roles have included the Herald’s deputy business editor and online business editor.