The Afterpay Ltd (ASX: APT) share price is down 29% since reaching an all-time high of around $160 in February this year.
Shares in buy now, pay later (BNPL) competitor Zip Co Ltd (ASX: Z1P) have also sold off over the last month.
Have Afterpay shares now entered buying territory?
Afterpay share price correction
Investors may be wondering what triggered the recent sell-off in Afterpay shares.
Perhaps the first point to highlight is that Afterpay shares had surged a staggering 1680% from their COVID-19 crash low of $8.90! In this light, a correction of 28% is not unexpected.
In my view, I believe the sell-off was mostly caused by Afterpay shareholders cashing in some of their gains.
Still not profitable
However, the market appeared disappointed with Afterpay’s HY21 results, falling 11% in a single day.
This was despite the company reporting break-neck rates of sales and EBITDA growth. Underlying sales lifted 106% to $9.8 billion and EBITDA surged by 521% to $47.9 million.
Growth was fueled by active merchants rising by 73% to 74,700 and active customers lifting by 80% to 13.1 million.
Despite delivering impressive EBITDA growth, Afterpay reported a statutory loss of $79.2 million after tax.
BNPL competition intensifying
News recently broke that PayPal Holdings Inc (NASDAQ: PYPL) will soon roll out its “Paypal Pay in 4” offering to Australian customers. At this stage, PayPal expects to launch by June this year.
Pay in 4 allows customers to split payments into four equal interest-free payments. On the surface, it seems extremely similar to Afterpay’s BNPL offering, and may put the brakes on Afterpay’s growth trajectory.
You can learn more about PayPal’s global BNPL offering in this article: How will PayPal impact Afterpay and other ASX BNPL shares?.
Time to buy?
Afterpay’s revenue and EBITDA growth rates are incredible, however, the group is not yet profitable.
I believe PayPal’s BNPL product will be very popular amongst its loyal customer base, and many will elect to checkout with it instead of Afterpay.
The increased competition may also place pressure on the fees Afterpay can charge its merchant partners.
For now, I will be keeping Afterpay on my watchlist and review it again when it hands down its full-year results.
