over 2 years ago • 3 mins
US payments giant Square proceeded to checkout with plans to buy Australian fintech Afterpay for $29 billion on Monday.
What does this mean?
Afterpay is a buy-now-pay-later company that lets its 16 million customers spread the cost of an online purchase over a period of time, without racking up interest on those payments (providing they make them on time). It’s an area that’s gone gangbusters recently: Adobe Analytics has pointed out that use of buy-now-pay-later services had more than tripled early this year versus the start of the pandemic.
Square, for its part, is hoping the deal will boost both its consumer and business segments. In the former’s case, there’ll be more people in its orbit who it’ll be able to win over to its money transfer service, Cash App. And since Square’s business customers will be able to offer even more payment options to their customers, it should increase revenue on the business side too.
Why should I care?
For markets: There may be trouble ahead.
No cash is actually changing hands here: instead, Afterpay’s investors will receive 0.375 Square shares for every Afterpay share they hold. That might’ve made sense to Square’s top brass, given that its stock has doubled in the last year. But as is traditional when a firm agrees to buy another one, its stock actually fell on Monday: a deal this big on a company in an area ripe for a crackdown isn’t without risks, after all…
The bigger picture: The industry’s proving its mettle.
Afterpay’s revenue was $693 million last financial year, which means Square’s $29 billion purchase price represents 42x trailing revenue. That might seem high, but Swedish rival Klarna was valued at $46 billion back in June with revenue of around $1.2 million in 2020 – a 38x multiple. America’s Affirm, meanwhile, began Monday valued at roughly 20x revenue. Investors have noticed: they sent Afterpay’s shares up 6% following the announcement.
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HSBC announced underwhelming second-quarter results on Monday, but the British bank sweetened the deal with a little somethin’ somethin’...
What does this mean?
HSBC’s investment banking revenue dropped 25% versus the same time last year, and its savings and lending business – which is usually pretty reliable – failed to pick up the slack. Still, at least the bank was able to free up a chunk of the money it’d put to one side in case customers couldn’t repay their loans, bringing the bank’s profit in above expectations.
Those “reserve releases” also mean HSBC thinks it’ll be able to exceed one of its prior targets: the bank had wanted to pay out 40-55% of its annual profits as dividends from next year, but it thinks it’ll be able to do it this year instead. The bank’s even looking at adding some share buybacks into the mix too.
Why should I care?
For markets: Divided over dividends.
HSBC is one of the biggest dividend payers among European banks, and analysts are expecting it to pay out more than its rivals over the next few years. But that might not be as much as the bank would like: its costs were higher than expected last quarter, with the 3,500 staff cuts it made in the first half of the year not enough to offset surging tech spending and bonus payments. So higher dividends now are great and all, but they won’t matter much if they come at the expense of future payouts.
The bigger picture: China without the risk.
Some investors like HSBC because its stock offers exposure to the fast-growing Asian market via the bank’s businesses in China and Hong Kong, without the risks involved in owning the region’s stocks directly. Government crackdowns, after all, are cropping up increasingly frequently in the country. And those investors might be onto something: Chinese stocks fell 4% after regulators reared their ugly heads again last week, but HSBC’s only fell 1%.
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