Afterpay smashed to new lows as tech crash intensifies

Tech Wreck 2.0 is intensifying and is a long way from over. It will continue so long as yields rise and value stocks come back into favour. That probably gives us another six months of washout by which time I expect many stocks to be down 90% plus. Growth has further to fall and so does small cap:

Growing nowhere

Growing nowhere

Let’s kick off this roundup with some sage worse from Richard Coppelsen:

  • Retail investors are being gutted. Many are young that this is a first.
  • They went long MOMO thinking it was an unstoppable freight train.
  • They should not have done so unless they could handle 50% corrections.

Actually, Coppo, it’s worse than that. This was a classic bubble driven by a new investor class and many stocks without earnings are going to virtually, if not literally, disappear. Recall the marvelous which boomed as it tracked the millennial tech wreck then went out of business itself as it ended.

So, to today’s massive losers. In Australia, it is the buy now, pay later sector:

To be clear, I have very little idea about any of these company’s operations. But I know a bubble when I see one and this qualifies.

At his juncture, unless you are exceedingly sure that these firms, and their like, are going to deliver rock-solid businesses with growing earnings very shortly, then they are to be actively avoided. Such bursting bubbles are like meat grinders. They draw in the naive who missed out on the way up for month after month, only to present them with new losses on the way further down. Companies without earnings are going to get continuously and repeatedly slaughtered:

Does this look rational to you?

Does this look rational to you?

I can see this bubble fully retracing to zero.

The funny part about it is, given it is global recovery, rising inflation and yields that are the key driver of the rout, after six months I foresee the possibility of a swing back to growth stocks.

The Fed might be forced to ease again if the growth, tech, commodity and EM unwind turns unruly, or structural deflationary forces prevail over the cyclical bounce in inflation and yields.

As such, buying these falling knives now is exceedingly stupid. There will be lower prices ahead when everybody says “don’t buy”!

David Llewellyn-Smith
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  1. The90kwbeastMEMBER

    Don’t disagree that the BNPL sector is going through a (much needed 30%+) correction, but “Smashed to new lows”? C’mon mate look at the chart. Lows were sub $10. It’s currently at $100 or 10x that.

    Next “To be clear, I have very little idea about any of these company’s operations. But I know a bubble when I see one and this qualifies.” So how do you know it’s a bubble then, other than a big price run up?

    “I can see this bubble fully retracing to zero.” On what basis, since you’ve already admitted you have no idea how these companies work?

    I for one missed out on the BNPL boom and also probably won’t buy the stocks either as legislative risk is quite high, but unless you have something of value to add, best to stay in your lane and admit you too missed out DLS rather than screaming bubble from the top floor.

        • In DLS/Nucleus defence (not an investor) it all depends how you see investing. If you believe in fundamentals then DLS is spot on. If you believe fundamentals dont matter, then DLS got it completely wrong. APT stock price now and during its past has no basis on fundamentals – by definition its a speculative investment. Amazon didn’t make a profit for 7 years, now look at them so fundamentals wont always get you on the right side of a scorecard.

          APT dont have any earnings and thus calling it a bubble/ponzi is equally justified because its only surviving on cash insertion rather than cash generation. DLS can correct me if I am wrong but Nucleus general investment strategy isn’t focused on short term directional trades without any underlying basis. Its a fair statement when they said “To be clear, I have very little idea about any of these company’s operations. But I know a bubble when I see one and this qualifies.” The numbers dont meet fundamental investor metrics, doesn’t mean it wont be the next amazon. Would also add that any ‘fundamentals investor” that bought early would have taken profits well before $100+ was reached. Beyond that its a directional speculative trade.

          I bought APT and a bunch of others at cheap prices (saw the payments boom as I work in the industry) but I took profit well before the peaks. My lens is that digital payments will continue to boom with the digitization of cash, COVID impacts, offline to online, IOT and mobile mega trends. Fundamentals will still apply but you could expect growth rates to be faster than other industries (airlines as an example) due to those mega trends. APT may struggle to grow internationally, they were a big fish in a small Australian pond but are now trying to play in the big leagues with the likes of PayPal, Square, Klarna, Stripe and Adyen…much tougher competition than CBA Pay in 4. Other thing to keep in mind with payments is that costs tend to track proportionally to revenues and unless APT and others get away from Visa/MC as a funding source the cost base will keep growing. Scheme fees and Interchange are increasing in unregulated markets (USA/NZ) and decreasing in regulated markets such as AU, EU and UK. In markets with regulated interchange the payments vendor will eventually get squeezed on margins as more companies fight over the same pie.

          • More balls! This was a clear bubble. The wildest I have ever seen. Look at the chart.

            Putting money into that is beyond speculative, as soaked millennials are now discovering.

            I never said anything other than that and have been proven 110% correct.

            I’m often wrong but telling me I’ve been wrong when I got it so throughly right is stoopid.

          • Read what I wrote – I agree with you.

            You got it wrong IF fundamentals dont matter anymore. The bigger question is how do you make money if everything is now a bubble, I would imagine the answer is “follow the crowd”. Long term I think you will be proven correct and fundamentals will matter. For now you will have to cop flack from people who aren’t on the right side of a trade.

      • Keep making your calls. It’s for other people to offer a reasonable counter, which doesn’t include smearing the author.

        Clearly a parabolic blow-off move over the last year; $12 to $150 within a year is a penny stock level move and not consistent with the previous years stock price growth either. The moment rising yields pricked the other bubble stocks, it tracked them down (tell you something?). I shorted at start of the month around $125; based on the chart, the level of mania I had seen in retail circles, the risk in the business model and the belief that yields were likely to continue rising.

    • Couldn’t agree more with your comment. I appreciate MB in the sense that they have made people more aware of underlying issues with this country in general but when it comes to investments, this site is one of the worst to listen too. The fact that they make absolute statements about certain investments they know nothing about is concerning. At least in this piece it is admitted, but, in many others it is not.

    • 90K Beast – your comment about legislative risk is a huge one for the buy now pay later sector.

      I’ve always wondered what business category they are regulated by.

      Pay day lender?
      Credit card?
      Personal loans/bank?

      No one has been able to tell me yet, but the whole edifice could come crashing down with a pen stroke in a government office.

      • The90kwbeastMEMBER

        I think that’s the $1b question. They aren’t regulated by the NCCP which essentially seems to mean they aren’t regulated by anyone – for now.

        • They engage regulators, essentially lobbying not to be regulated. Their entire BNPL code of practice is written in a way which aligns with their business model meaning any new entrants have to use that as the yardstick. They have played the regulators well.

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