Morgan Stanley boss James Gorman delivered the frightening forecast about the expansionary mindset that drove the export of buy now, pay later from Australia.
On a cloudy New York morning last October, Larry Diamond made his way up to the 42nd floor of Morgan Stanley’s headquarters near Times Square.
After the meeting, with Hockey still by his side, Diamond called his co-founder Peter Gray, who was holding the fort in Sydney. “There are some clouds gathering on the horizon,” Diamond told him. “We have to shift our thinking.” With the market’s loss of faith near total, the once-loved sector is now facing its most serious existential threat. And Zip has been the poster child for the loss of faith.
Investment bank Goldman Sachs had facilitated meetings with US investors and Australian companies, inviting Afterpay to join the likes of BHP and Westpac. But the stalwarts of the old economy were largely ignored; it was the fast-growing BNPL phenomenon that attracted all the attention from US hedge funds that believed its rapid expansion to take on the traditional credit card industry could rival some of their big tech bets.
with a price target of $17.25 – half the market level at the time. And since that moment, Beadle has stood as an uncomfortable outlier as Afterpay melted higher., while the median target among 14 analysts was $135. Along with UBS, only Morningstar, and much later US brokers Bernstein, had a sell recommendation.in a phone interview to share his thoughts on the state of play in the sector.
at the top of the market, the year-on-year growth rates in transaction volumes have fallen well short of the consensus forecasts, from 70 per cent to below 20 per cent. An emailed summary of the call said the analysts “sounded bearish on BNPL”, also because of rising losses, contracting operating margins and a dependence on funding markets that had turned hostile.
Australia’s dominant banks have watched its rise with varying degrees of scepticism, apprehension, opportunism and awe.National Australia Bank’s corporate unit stumped up the funding that kick-started Afterpay’s growth in 2016, while Westpac cosied up to Zip by investing in 2017. More recently, banks have created BNPL products of their own. As recently as last month,in response to customer demands to pay in four, following a similar move by Commonwealth Bank last year.
“But it’s much harder to find customers if you can’t fund. So, I think the balance has shifted slightly in the last three to six months.”
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