先买后付行业：PayPal进入“PayIn4”的运行场景

1、Global Research10 September 2020EquitiesBuy Now Pay Later SectorTechnologyAustralasiaPayPals entry into Pay in 4: running the scenariosWhy is PayPal entering Pay in 4?While the Buy-Now Pay-Later (BNPL) sector has provided innovative payment and credit solutions with attractive economics, our two key

2、 concerns have been the risk of competition & regulation. With PayPals 346m monthly active users, 26m merchants globally, and US$790bn of Total Payment Volume (TPV) over the last 12 months, its entry into Pay in 4 in the USA could be a significant turning point. PayPals entry was likely motivated by

3、 several factors, including its desire to have a product for consumers whose terms & duration match existing alternatives, as well as its interest in expanding point-of-sale financing options available to merchants. We estimate the marginal cost of Pay in 4 might only equate to 10bps of PayPals TPV,

4、 implying that only minimal volume uplifts are required to break-even even assuming moderate cannibalisation.Running the scenariosPayPals proposed Pay in 4 offering comes at no additional cost to its merchants and is free to customers who pay on time, highlighting the attractive economics of BNPL: P

5、ayPal charges merchants 2.4% on average, versus APTs 3.9% (QuadPays average merchant fee is not disclosed, we believe it might be similar or slightly higher than APT at present). Given increased competition we have run 2 simple scenarios for APT and Zip: 1) meet halfway, where APT and Zip lower marg

6、ins by 90bps over 5 years to match competition, and 2) intense competition, where margins are lowered by140bps over 5 years. For APT, Scenarios 1 & 2 lower consensus FY25E NPAT by 55%/ 70% respectively, and our FY25E NPAT forecast for Zip by 20%/40% respectively.Can the first movers match PayPals me

7、rchant reach and marketing budget? With 26m active merchants globally, PayPals merchant reach is roughly 500 x that of Afterpay and 900 x that of Zip. This is perhaps unfair on APT and Zip given their average sales per merchant is currently significantly higher than PayPals (APT/Zip generatedA$200k/

8、A$86k in sales per active merchant in FY20, PayPal US$27k or A$39k in CY19), we attribute this to APT & Zips focus on larger merchants & their differentiated offerings to this point. This magnitude however highlights the challenge APT and Zip now face to win the long tail of smaller merchants as wel

9、l as larger merchants not yet on their platforms, given PayPals offering is significantly cheaper and requires no additional integration. We also highlight the financial resources at PayPals disposal: PayPals marketing spend of A$2.0bn in CY19 compares with APTs $71m and Zips$10m in FY20, and PayPal

10、 generated US$3.9bn of free cash flow in FY19 (A$5.5bn).Figure 1: UBS ratings and selected valuation metricsTom BeadleAnalyst HYPERLINK mailto:tom-g.beadle tom-g.beadle+61-2-9324 2126Eric E. WasserstromAnalyst HYPERLINK mailto:eric.wasserstrom eric.wasserstrom+1-212-713 1355Jonathan MottAnalyst HYPE

11、RLINK mailto:jonathan.mott jonathan.mott+61-2-9324 3864Minh PhamAnalyst HYPERLINK mailto:minh-p.pham minh-p.pham+61-2-9324 2119Eric Choi Analyst HYPERLINK mailto:eric.choi eric.choi+61-2-9324 2356Claire Yan Associate Analyst HYPERLINK mailto:claire-x.yan claire-x.yan+61-2-9324 3218CurrentPricePriceT

12、argetRatingFY20EV / SalesFY21FY22FY20EV/EBITDAFY21FY22FY20P/EFY21FY22PayPal (Dec-YE)A$185.95US$213.00Neutral9.8x8.1x6.7x48.0 x34.7x26.6x49.5x38.9x30.5xAfterpay (Jun-YE)A$74.05A$28.25Sell15.5x22.8x15.3x316.4x218.7x90.1x316.4x218.7x90.1xZip Co (Jun-YE)A$6.61A$5.50Sell13.5x10.7x8.4x-284.9x-109.5x1295.2

13、x-284.9x-109.5x1295.2xSource: UBS estimates HYPERLINK /investmentresearch /investmentresearchThis report has been prepared by UBS Securities Australia Ltd. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 15. UBS does and seeks to do business with companies covered in its research report

14、s. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.What could PayPals entry into the sector mean?While we believe t

15、he Buy-Now Pay-Later (BNPL) sector has provided innovative payment and credit solutions with attractive economics, capitalising on the shift in consumer behaviour, our key concern has always been the risk of regulation and meaningful competition entering the market. With PayPal launching a Pay in 4

16、product expected in 4Q20 (link here), following Shopifys partnership with Affirm, we believe this could lead to significant competitive pressures over coming years.Founded in 1988, PayPal is a digital payments platform available in more than 200 markets, with 346m monthly active customers and provid

17、es services to more than 26m merchants. This compares to Klarna, the biggest BNPL provider, with 12m customers and 200m merchants, operating in 17 markets.Figure 2: Comparison of PayPal and BNPL providersPayPals Pay in 4 could be a significant turning point for the BNPL sectorWe attempt to quantify

18、what this could mean for Afterpay and ZipJune-20 unless stated otherwisePayPal (USD)Afterpay (AUD)Zip (AUD)Sezzle (USD)Klarna (USD)Key DriversActive customers (m)3469.92.11.512Transaction value ($m)791,37211,1142,11048141,211No. of transactions (m)13,554Transactions per customer40Merchants (000)26,0

19、00542916200P&LRevenue ($m)19,21850315930936Revenue (% of transaction value)2.43%3.90%7.55%6.16%2.27%Net transaction margin (% of transaction value)1.30%2.31%2.45%1.69%1.51%Operating income ($m)2,845-4.6-20.6-13.1-124.3Operating income (% of revenue)14.8%-0.9%-12.9%-44.1%-13.3%NPAT ($m)2,583-27.8-20.

20、0-20.0-137.8Source: Company data, UBSIn addition to PayPals scale and large customer base, with a merchant margin of2.4% compared to traditional BNPL providers 2-7% (Klarna also operates a bank which skews its revenue margin), it offers significant value to merchants.While we understand that BNPL pr

21、oviders increase customer traffic, basket size and conversion, we believe PayPal offers similar results (albeit to a lesser extent) but for a fraction of the cost. We believe this is likely to result in margin compression across the sector if growth continues.Given the many moving parts, we attempt

22、to look at two scenarios and how this would apply to Afterpay (APT) and Zip later in this note.Why is PayPal entering Pay in 4?While the likes of Afterpay, Klarna, Affirm and Sezzle are all growing rapidly in the USA, Pay in 4 is still relatively under-penetrated in the USA relative to Australia and

23、 New Zealand (A/NZ) from the perspective of both active customer numbers and merchant acceptance.While we cannot estimate total BNPL penetration given the overlap of customer bases, Afterpay and Zips customer bases represented 14.0% and 9.1% of the combined adult populations in A/NZ. This compares w

24、ith Afterpays 5.6m active customers as at June 2020 representing just 2.2% of the adult population in the USA, while QuadPays 2.0m customers at Aug-20 represented just 0.8% and Sezzles 1.48m customers (Jun-20) representing 0.6%.PayPals Pay in 4 product, as implied by the name, enables a consumer to

25、finance a purchase of $30-600 in four equal installments paid over a six week period with zero interest and fees. This product is a derivative of its core PayPal Credit BNPL offering, which offers the opportunity for a consumer to finance a purchase typically $99 over 3-12 months at various interest

26、 rates, although in some cases, PayPal will offer 0% promotional financing through six months. We believe PayPals move to offer Pay in 4 was likely motivated by several factors, including its desire to have a product for consumers whose terms and duration match existing alternatives, as well as its

27、interest in expanding the financing options available to merchants at the point-of-sale.The Pay in 4 product was initially tested in France, where media sources have reported that PayPal charges the merchant 2.1% of the transaction value. In the US, PayPal has indicated that Pay in 4 will be include

28、d in its standard merchant pricing, which we believe is 2.7% for in-store transactions, and 2.9% for online transactions plus a fee that varies depending on the nature of the consumers funding source for the purchase.What are the marginal economics of Pay in 4 for PayPal?In HYPERLINK l _bookmark0 Fi

29、gure 3 we calculate what the marginal economics of Pay in 4 might look like for PayPal. We estimate the net marginal cost to provide Pay in 4 might only equate to 10bps of PayPals Total Payment Volume (TPV), based on the following assumptions:There are no additional costs to the merchant.Late fees o

30、f 20bps of TPV (as a comparison, Afterpays late fees were the equivalent of 62bps of underlying sales in FY20), which is treated as incremental revenue.A loss rate of 7% of average Pay in 4 receivables, which is in line with PayPals credit card portfolio. Based on PayPals Pay in 4 book turning over

31、17 time per year, this equates to 40bps of TPV, however this is incrementally only 18bps higher than PayPals average transaction and loan loss rate over the 12 months to June 2020.This implies a Net transaction loss of 20bps, however incrementally there is a 2bps tailwind as late fees are additive t

32、o PayPals take rate.We then add marginal funding costs of 2.5%, or 12bps of TPV assuming 17x turnover and 1 day merchant settlement, to arrive at our estimate of 10bps.This is the equivalent of only 4% of PayPals Total Take rate of 2.43% in the 12 months to June 2020, or 7.5% of PayPals transaction

33、margin (1.30% in the 12 months to June 2020).While Pay in 4 appears marginally dilutive to PayPals transaction margin, incremental volume and mix also need to be considered. Based on our simple scenario analysis:Every 10% of mix might dilute PayPals $ transaction margin by only 0.7%, howeverAssuming

34、 a scenario where Pay in 4 drove incremental TPV growth of 5%, assuming 10% of TPV is from Pay in 4, this would be +4.2% accretive to PayPals $ transaction margin, or +3.5% accretive if Pay in 4 mix was 20% of TPV.Figure 3: Marginal impact of Pay in 4 on PayPals economicsUnitsPayPal reported1Last 12

35、 months% TPVMarginal Pay in 4 impact% TPVPay in 4 economics% TPVActive accounts, June 2020 Average active accounts Total payment volumem mUS$m346310790,372100.00%Transaction revenueUS$m17,6502.23%0.00%2.23%Other value added servicesUS$m1,5680.20%0.20%0.40%Total revenueUS$m19,2182.43%0.20%2.63%Transa

36、ction Expense RateUS$m7,1860.91%0.00%0.91%Transaction and Loan Loss RateUS$m1,7620.22%0.18%0.40%Volume-related expensesUS$m8,9481.13%0.18%1.31%Transaction marginUS$m10,2701.30%0.02%1.32%Transaction margin %53.4%Non-transaction related expensesUS$m5,6780.72%0.00%0.72%Total Operating expensesUS$m14,62

37、61.85%0.18%2.03%Non-GAAP Operating IncomeUS$m4,5920.58%0.02%0.60% margin%23.9%Incremental Pay in 4 funding costs%0.12%0.12%Transaction margin % incl. incremental funding costsUS$m10,2701.30%-0.10%1.20%PayPal $ transaction margin incl. incremental funding costs$% chgLTM reportedUS$m10,270Assuming 10%

38、 Pay in 4 mix, no incremental TTVUS$m10,193-0.7%Assuming 20% Pay in 4 mix, no incremental TTVUS$m10,117-1.5%Assuming 10% Pay in 4 mix , 5% incremental TTVUS$m10,7034.2%Assuming 20% Pay in 4 mix , 5% incremental TTVUS$m10,6223.4%1. Based quarterly data over the 12 months to June 2020. Source: UBS est

39、imates, PayPalHow could it play out? Scenario analysisWe believe various scenarios could play out from here but attempt to simplify this by focusing on the impact of two potential situations:Meet halfway: Merchant/Revenue margins reduce by 90bps over the next 5 years, volumes remain as expected and

40、operating expenses reduce slightly to provide an offset to lower than expected revenue growth;Intense competition: Merchant/Revenue margins reduce by 140bps over the next 5 years, volumes are higher than expected given increased merchant take-up and expenses reduce significantly to partly offset low

41、er revenues.We apply these situations to Consensus estimates for Afterpay given substantial detail provided by Visible Alpha and UBS estimates for Zip given limited Consensus numbers.What happens to Afterpays economics?We apply the below scenarios to current Consensus estimates (over the page).Figur

42、e 4: Merchant margin (% of underlying sales) scenario assumptionsWe discuss two possible scenarios given the uncertain outlook(%) 4.03.83.63.43.23.02.82.62.42.2Consensus Base caseUBS Scenario 1 - Meet halfwayUBS Scenario 2 - Intense competitionFY20FY21EFY22EFY23EFY24EFY25ESource: Visible Alpha, UBSe

43、Figure 5: Details of key drivers for UBS Scenarios applied to Consensus estimatesFY20FY21EFY22EFY23EFY24EFY25EConsensus Base caseMerchant margin3.903.773.673.583.523.42Chg in merchant margin y/y (bps)-13-9-9-7-10Late fees (% of underlying sales)0.620.680.640.580.550.51Cost of sales (% of underlying

44、sales)1.211.121.091.040.980.93Credit impairment charge (% of underlying sales)0.850.960.860.790.780.74Debt recovery costs (% of underlying sales)0.150.140.150.140.110.11Net transaction margin (%)2.312.242.222.182.192.14Chg in NTM y/y (bps)-7-2-31-5Underlying sales ($m)11,11420,79833,73048,73465,4728

45、4,162Underlying sales growth (% y/y)1128762443429Operating expenses (% of underlying sales)2.231.991.611.341.171.01Chg in operating expenses y/y (bps)-24-38-27-18-16UBS Scenario 1 - Meet halfwayMerchant margin3.903.753.553.303.053.00Chg in merchant margin y/y (bps)-15-20-25-25-5Chg in merchant margi

46、n from base case (bps)-2-12-28-46-41Cost of sales incl late fees (% of underlying sales)1.591.531.461.401.331.27Net transaction margin (%)2.312.222.101.901.731.73Chg in NTM y/y (bps)-9-13-19-180Chg in NTM from base case (bps)-2-12-28-46-41Underlying sales ($m)11,11420,79833,73048,73465,47284,162Unde

47、rlying sales growth (% y/y)1128762443429Chg in underlying sales growth from base case (%)00000Operating expenses (% of underlying sales)2.232.031.731.330.830.73Chg in operating expenses y/y (bps)-20-30-40-50-10Chg in operating expenses from base case (bps)412-1-34-28UBS Scenario 2 - Intense competit

48、ionMerchant margin3.903.753.503.102.602.50Chg in merchant margin y/y (bps)-15-25-40-50-10Chg in merchant margin from base case (bps)-2-17-48-91-91Cost of sales incl late fees (% of underlying sales)1.591.531.461.401.331.27Net transaction margin (%)2.312.312.302.061.611.50Chg in NTM y/y (bps)0-1-24-4

49、5-10Chg in NTM from base case (bps)88-13-58-64Underlying sales ($m)11,11421,67337,92758,78782,302102,878Underlying sales growth (% y/y)1129575554025Chg in underlying sales growth from base case (%)813116-4Operating expenses (% of underlying sales)2.232.031.731.280.780.68Chg in operating expenses y/y

50、 (bps)-20-30-45-50-10Chg in operating expenses from base case (bps)412-6-39-33Source: Visible Alpha, UBS estimatesScenario 1 Meet halfway, results in a 55% reduction to Consensus NPAT by FY25E due to a reduction in merchant margin from 3.9% in FY20 to 3.0% in FY25E (vs 3.42% base case). This reduces

51、 ROE by 16% in FY25E from 35% to 20%. We believe this is not an outlandish scenario and still results in a profitable mature business with $84bn in annual underlying sales.Scenario 2 Intense competition, results in a 70% reduction to Consensus NPAT by FY25E due to a reduction in merchant margin to 2

52、.5% in FY25E (vs PayPals current margin at 2.4%), partly offset by increased underlying sales. This reduces ROE by 20% in FY25E to 14%. We believe this scenario may be unfair given it is unlikely that Afterpay will reduce merchant margins so significantlyrelatively early in its maturity. In such a s

53、ituation, it may also look to decrease operating expenses more materially.Figure 6: Scenario analysis outcomes applied to Afterpays Consensus estimatesFY20FY21EFY22EFY23EFY24EFY25EUBS Scenario 1 - Meet halfwayOperating profit ($m)-51793242545792% difference to Cons Operating profit-40%-47%-35%-13%-1

54、2%NPAT post minorities ($m)-20-551147354529% difference to Cons NPAT-139%-74%-69%-56%-55%ROE (%)-2.1-0.33.08.016.219.5% difference to Cons ROE-1%-8%-13%-13%-16%UBS Scenario 2 - Intense competitionOperating profit ($m)-51889211367516% difference to Cons Operating profit-34%-49%-43%-41%-43%NPAT post m

55、inorities ($m)-20-548127235341% difference to Cons NPAT-135%-76%-73%-71%-71%ROE (%)-2.1-0.32.97.011.514.3% difference to Cons ROE-1%-8%-14%-18%-21%Source: Visible Alpha, UBS estimatesFigure 7: Afterpays NPAT outcomes after applying UBS scenarios ($m)Figure 8: Afterpays ROE outcomes after applying UB

56、S scenarios (%)($m) 1,2001,0008006004002000-200Consensus Base caseUBS Scenario 1 - Meet halfwayUBS Scenario 2 - Intense competition(%) 40Consensus Base case UBS Scenario 1 - Meet UBS Scenario 2 - Intensehalfwaycompetition35302520151050-5FY20AFY21EFY22EFY23EFY24EFY25EFY20AFY21EFY22EFY23EFY24EFY25ESou

57、rce: Visible Alpha, UBS estimatesSource: Visible Alpha, UBS estimatesUBS estimates vs consensusInterestingly, Consensus expects merchant margins to decrease significantly over time as Afterpay expands into new markets. UBS estimates do not have the same level of margin compression as Consensus, most

58、 likely due to lower international market expansion. This is also reflected in our reduced underlying sales assumptions.Figure 9: UBS vs Consensus merchant margin assumptions (%)Figure 10: UBS vs Consensus underlying sales assumptions (A$m)4.0(%)84,162($m) 90,0003.773.903.8665,47264,3063.980,0003.67

59、3.683.6554,3413.870,0003.5848,73441,8403.760,0003.523.4933,7303.650,0003.4220,79829,1053.540,00018,5863.430,0003.320,0003.210,0003.1FY21EFY22EFY23EFY24EFY25E0FY21EFY22EFY23EFY24EFY25EConsensusUBSConsensusUBSSource: Visible Alpha, UBS estimatesSource: Visible Alpha, UBS estimatesWhat happens to Zips

60、economics?We apply the below scenarios to current UBS estimates. (Note that the revenue margin for Zip includes revenue earned from other Zip businesses including ZipMoney, its credit card product.)Figure 11: Revenue margin (% of underlying sales) scenario assumptions(%) 8.07.57.06.56.05.5UBS Base c