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One Major Management Change at Splitit

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Splitit (ASX: SPT) has been making headlines recently, after the company’s co-founder, Gil Don, is stepping down from his role as company CEO. Founder CEOs tend to be preferred by the market, given that their strong stakes in the business ensures strong alignment of interest. The CEO will be replaced by the North American MD, Brad Paterson, who has been executing well on the company’s expansion strategy.

Splitit management change
Splitit has been trying to get a slice of the explosive growth in buy now, pay later providers (Credit: Splitit)

The buy now pay later segment of the market has been on a roller coaster recently, with positive updates from Zip (ASX: Z1P) and Afterpay (ASX: APT) driving the sector up. Splitit (ASX: SPT) has been trying to get a share of the action, pitching their model as offering a unique value proposition separate to Afterpay. They rallied strongly on the IPO as investors priced them on multiples which suggested that they had a big chance of being the next Afterpay. As investor expectations moderated, the company sold off from $2 to 50c, much closer to their IPO price.

The firm touts their high approval rates and opportunity to split purchases into 36 interest-free monthly payments (compared for four quarterly payments with APT) as differentiating factors for the platform. They also offer a 90-day trial period with products purchased on the platform, before payments commence, to attract consumers.

Bears would however argue that the difference between the business models of Splitit and Afterpay make the product much harder to monetise. Charging merchants a fee of 6% is a great business model if your initial capital is returned over 5 weeks (the average of four fortnightly instalments), since the return on capital is 80%p.a. assuming minimal friction and no defaults from the client. While both of these are big asks, an average repayment period of 18 months reduces the return on capital from Splitit’s 36-month repayment plan to 4%p.a. Any customer defaults and friction between payments reduce this return even further.

Splitit is one of the smallest companies in the ASX buy now, pay later space, so bulls argue that the business has the most room to grow. While this is true, many new industries have come to be dominated by a few players, particularly if network effects are important. Investors in the sector need to balance up both of these factors before deciding whether Splitit or one of the incumbents have more potential.

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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