Dorsey’s $29 billion deal provides an instant payday for Afterpay founders

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SYDNEY (Reuters) – A tweet by Kim Kardashian promoting Afterpay (APT.AX) as a way to buy her own beauty products may have proven pivotal to the Australian Buy Now, Pay Later, whose founders have since joined reality TV. A star like a billionaire.

Kardashian’s recommendation in 2018 helped Afterpay, which agreed to a record $29 billion purchase by Square (SQ.N), the payments company of Twitter (TWTR.N) founder Jack Dorsey, penetrate the US market.

Afterpay’s rapid rise, which culminated in Australia’s largest-ever deal and boosted its stock market to record highs, began when an eBay (EBAY.O) seller noticed young people were avoiding credit cards after the 2008 financial crisis. Read more

“It all started from seeing a shift in 2008 for millennials toward debit cards over credit cards,” Afterpay co-founder Nick Molnar said in a 2020 Reuters interview.

Molnar, 31, sold jewelry from his bedroom while studying commerce at the University of Sydney, and he and Melbourne-based founder Anthony Eisen were next door.

He and Eisen, a 49-year-old former fund manager who specializes in tech companies, will each get A$2.46 billion ($1.8 billion) from the Dorsey-led deal, and they will remain in the company.

Australian media widely reported that Molnar is the country’s youngest self-made billionaire. Along with Aizen, he is ranked fifth on a list of Australia’s richest CEOs, the Australian Financial Review reported in July.

Buddy’s success depends on the idea that they can offer shoppers a small loan to pay back in installments, with an incentive to make more purchases if they pay back on time.

Afterpay will take a portion of 4-6% of the shelf price from the merchant, who will use their services to advance the business.

They began operating in 2014, selecting clients from big names such as Woolworths (WOW.AX), Myer Holdings (MYR.AX) and Wesfarmers (WES.AX) Officeworks.

And just three years later it merged with its technology supplier, Touchcorp, to create a one-stop service.

As of 2017, Afterpay can screen shoppers and direct them to stores while processing loans and repayments. Because of its low-dollar loans and its appeal to shoppers, Afterpay says it has lower default rates than other consumer loan methods.

However, the transition to riches for Molnar and Eisen has not always been smooth as Afterpay has come under regulatory scrutiny in both Australia and the US.

In 2019, the Australian Anti-Money Laundering Agency ordered an independent audit of Afterpay, citing “compliance concerns” and rapid growth in buy now, pay later. Later everything was given clear.

And in 2020, Afterpay paid A$1.5 million to California regulators who said it had been operating illegally since it began writing business there before it was licensed. The company denied any illegal conduct.

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Afterpay acquired Tencent’s (0700.HK) investment in May 2020, leading to a drawn-out rally as investors aligned their portfolios with the Chinese online giant.

The boom in online shopping during the COVID-19 pandemic, spurred by fiscal stimulus checks, also sealed its high rating.

Its shares broke through A$100 in October and by February 2021 reached A$160.

Although Afterpay has yet to post a net profit, it is one of Australia’s top 20 companies, along with financial powerhouse Macquarie (MQG.AX) and telecom giant Telstra (TLS.AX).

Monday’s deal maintains a stock valuation that some analysts said was exaggerated amid uncertainty around the variable COVID-19 Delta, varying levels of government relief funding and warnings that interest rates should rise from record lows.

“It’s a market-defining transaction. It really moves the needle and validates the work that Afterpay has been doing,” said Emmanuel Datt, founder of Datt Capital, which bought Afterpay shares for about A$7.00 in 2018 and expected a purchase this year.

($1 = 1.3598 Australian dollars)

(Reporting by Byron Kay in Sydney; Additional reporting by Nikhil Kurian Nainan in Bangalore; Editing by Sayantani Ghosh and Alexander Smith

Our Standards: Thomson Reuters Trust Principles.

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