The Afterpay Ltd (ASX: APT) share price has dropped around 9% in a really rough day for the buy now, pay later sector.
What’s going on with the Afterpay share price?
It’s not just Afterpay shares that have suffered today.
There has actually been a widespread decline. The Zip Co Ltd (ASX: Z1P) share price also fell almost 9%. The Openpay Group Ltd (ASX: OPY) share price dropped around 8%. Sezzle Inc (ASX: SZL) suffered a share price selloff of over 6%, the Laybuy Holdings Ltd (ASX: LBY) share price went down around 5% and the Ioupay Ltd (ASX: IOU) share price plunged 12.5%.
But before you start thinking that the market has suddenly been turned off buy now, pay later, many high flying growth shares have seen a big decline.
The Nearmap Ltd (ASX: NEA) share price declined 7.7%, the Redbubble Ltd (ASX: RBL) share price declined 7.6% and the Pointsbet Holdings Ltd (ASX: PBH) share price fell 7%.
So, what does this mean for the Afterpay share price?
I don’t think the underlying value of Afterpay is almost 10% less than it was yesterday. Although I’m not sure the intrinsic value of Afterpay is as high as $100 or even $90 at this point.
The problem for me is that Afterpay is not yet making a profit. Businesses can be worth investing in if they’re not making a profit, but competition is rising in the BNPL space and there is growing commentary that merchants should be allowed to pass on costs to customers.
Rising interest rates could also be a problem in a year or two. Not only can that affect the valuation, but earnings might be affected if the interest expense rises significantly.
Summary thoughts
Over the long term, I can’t see regulators, merchants and competition all letting Afterpay maintain the margins that it is without some sort of change.
In my mind, there are other ASX growth shares that make more sense at the current valuation, particularly at today’s lower prices.