Square shares soar after announcement of $29B deal to buy Afterpay

Shares of financial services company Square eversed course and soared more than 10 percent after the markets opened Monday as investors reacted to its $29 billion deal to acquire “buy now, pay later” firm Afterpay.

The stock was down almost 5 percent in premarket trading before heading north to about $273 per share in early trading Monday.

Square, which is helmed by Twitter boss Jack Dorsey, announced the all-stock deal on Sunday evening.

Shares of Melbourne-based Afterpay, which are listed on the Australian Securities Exchange in Sydney, soared almost 20 percent on the news.

“Square and Afterpay have a shared purpose,” Square’s CEO Dorsey said in a statement. “We built our business to make the financial system more fair, accessible, and inclusive, and Afterpay has built a trusted brand aligned with those principles.”

It’s Square’s biggest deal ever, and the company said it will help position the firm to capture more young users, who have shown a preference for the so-called “buy now, pay later” trend over traditional lines of credit.

Afterpay lets customers purchase a product immediately and pay the price off in four, interest-free installments.

Customers are only charged a fee if they miss an automated payment, which would also result in the locking of their account, which Afterpay says keeps users’ debt in check.

Afterpay, which boasts more than 16 million customers, has yet to turn a profit as it prioritizes aggressive growth.

Installment loans like those offered by Afterpay have been used for years to purchase big-ticket items, but online payment startups have begun offering the service for smaller items such as apparel, video games and other types of online orders.

Klarna, another “buy now, pay later” app, skyrocketed earlier this year to an eye-popping $45.6 billion valuation, becoming Europe’s hottest startup.

Shares of another financial firm offering the deferred payments option Affirm surged more than 8 percent on the news of the Afterpay acquisition, which may suggest that investors view the sector as ripe for more deals to come.

And financial heavyweights like PayPal, Mastercard, American Express, JP Morgan and others either already offer “buy now, pay later” options or are reportedly eying an entry into the space.

Square is best known for its prolific white card reader that plugs into phones and tablets that many small business use to readily process payments. Square said Sunday it plans to integrate Afterpay and add it as an option wither the smaller merchants that use its technology.

Square also said it will integrate its popular digital payment service Cash App, which lets people store and transfer money like Venmo, with Afterpay, enabling people to make payments on their loans through the app.

Square added that “Afterpay consumers will receive the benefits of Cash App’s financial tools, including money transfer, stock and Bitcoin purchases, Cash Boost, and more.”

Executives from Square and Afterpay are expected to discuss the deal more on a conference call Monday morning.

The deal is expected to close in the first quarter of 2022.

Square also reported second-quarter earnings on Sunday, ahead of schedule. The company missed expectations for revenue, but posted surprisingly strong net income.