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Apple To Take On Affirm And Klarna With Entry Into Buy Now Pay Later

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Key Takeaways

  • Apple held its WWDC keynote on Monday, announcing iOS 16, the new M2 chip and multiple other new features and technology
  • They also announced a foray into the Buy Now Pay Later industry, with Apple Pay Later to be integrated into iOS 16
  • With Klarna still a private company and Afterpay recently acquired by Block, Affirm was the hardest hit by the news with its share price tumbling after the announcement

If you owned a business and had to pick the company you’d be most worried about entering your market, Apple would have to be pretty high on that list. With revenue in 2021 of $365 billion and over $200 billion cash in the bank, Apple has significant scale and seriously deep pockets.

At their recent Worldwide Developers Conference (WWDC), Apple announced they’ll enter the rapidly growing Buy Now Pay Later (BNPL) space, which has so far been dominated by upstarts like Affirm and Klarna. These companies are no longer small fries though, with Affirm, for example, holding lucrative partnerships with retail giants like Walmart and Amazon.

Still, this is Apple. The company that spent $6 billion—almost the equivalent of Affirm’s entire market cap—on a handful of TV shows for its Apple TV+ service launch in 2019. BNPL firms could be forgiven for feeling a bit nervous.

Apple’s WWDC announcements

The WWDC is a hotly anticipated event on the annual technology calendar. It’s Apple’s big show to the world on what they have planned for their products and services in the coming year. The main focus of the showcase is to present to third-party developers to give them time to work on new or updated apps and products that utilize Apple’s upcoming new features and technology.

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As you’d expect, announcements of new Macbooks, iPhones and iOS features garner just as much interest from the average Joe looking to upgrade. While we seem to be past the era of mile-long queues for the new iPhone, there’s generally plenty of news to get the buzz going.

We’ll get to Apple’s new BNPL service, Apple Pay Later, in a minute, but there were also plenty of other announcements at this year’s WWDC. iOS 16 is set to get a few significant updates. These include the ability to edit and unsend iMessages, a customizable lock screen that will allow greater control of apps without unlocking and the ability to use your iPhone as a webcam for your Mac.

From a hardware perspective, Apple will be launching a follow-up to their highly regarded in-house microchip, the M1. A newly designed Macbook Air will be the first Mac to receive the new M2 chip, with the Macbook Pro also receiving the hardware upgrade. There was no word on the timescale for delivery of the latest devices, and it will remain to be seen whether it’s impacted by the global microchip shortage.

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Apple Pay Later, explained

Of course, Apple announced that iOS 16 will also come with its own BNPL later service, Apple Pay Later. The new feature will allow U.S. users to pay for purchases in four installments over six weeks. They won’t charge any interest or fees to the user, and Apple Pay Later can be used for any transaction completed using Apple Pay.

This is a massive blow to the existing players in the market, such as Affirm. Apple Pay adoption is snowballing, with customer and retailer numbers increasing at an impressive pace. While full judgment will need to be reserved until the finished product is released, it would be a fair assumption that the integration between Apple Pay and Apple Pay Later will be slick.

The level of integration will provide an immediate competitive advantage to Apple over the existing players in the market. Affirm and Klarna have invested tremendous resources into partnering with retailers and have had significant success. Even so, Apple has the potential to take this integration to another level.

It’s also not Apple’s first foray into the financial-products market. For several years, they’ve allowed customers to pay in installments for items purchased from the Apple store, such as Macbooks and iPhones. Since 2019, they’ve also offered their own credit card to U.S. customers in a partnership with Goldman Sachs.

How does Buy Now Pay Later work?

With no fees and no interest, how does Apple Pay Later expect to make money? The details obviously haven’t been released yet, but we can look to other companies in the sector for some insights.

Affirm, for example, generate revenue via several different methods. They do charge interest for some of their loan products, but almost half of their income comes from fees charged to merchants.

What this means is that if you purchase something from Amazon using Affirm, Amazon will pay Affirm a fee for facilitating the transaction. The main reason they do this is that the data shows that the availability of BNPL increases sales conversion rates and the average order size.

Setting aside the ethics of this concept for a minute, consumers are likely to spend more and shop more often if they can delay paying. With a vast network of merchants already accepting Apple Pay, it’s likely to be a reasonably straightforward addition for them to accept Apple Pay Later.

The controversy surrounding Buy Now Pay Later

The industry is not without its challenges and has come under fire from those who believe it encourages unsustainable spending practices and targets those on lower incomes. This issue has been compounded by the fact that many BNPL providers don’t report all their loans to credit bureaus and often don’t conduct any credit checks on new borrowers.

This can make it easier for customers to fall into debt while allowing them to continue accessing additional credit. But given that Affirm doesn’t charge interest or late fees on many products, why is this a problem? Essentially, it’s because they’ll eventually pass the debt on to someone else.

According to Affirm, they may charge off a loan if no payments are made for 120 days. This will generally mean the loan is purchased by a debt collection agency, and they definitely aren’t as lenient regarding interest and late fees.

This controversy is causing the regulators to look closely at the industry. Late last year, the Consumer Financial Protection Bureau announced that they would be looking into companies such as Affirm, Paypal and Afterpay over concerns about mounting consumer debt and the usage of personal data.

The industry itself obviously pushes back on these accusations. They argue that BNPL provides consumers with greater flexibility and choice over their spending and, as a result, makes it easier to manage household finances.

The impact on Affirm

While Klarna and Afterpay held the biggest market share in the U.S. BNPL market as of late 2021, Affirm is growing rapidly. Needing to take down two multi-billion-dollar companies to gain the industry’s top spot, it’s no surprise that Apple has shot down Affirm’s share price.

The Affirm share price reacted immediately, dropping over 7% the morning of Apple’s announcement. The knee-jerk reaction is that Apple Pay Later will drop Affirm down the pecking order and reduce their revenue potential by eating up market share.

This could spell bad news for Affirm in the short term, but as with most aspects of investing, it’s not black and white. To look at this from a different angle, Apple entering the BNPL industry could actually help companies like Affirm and Klarna in the long run.

This is because Apple has the potential to make the BNPL pie much larger overall. While Affirm could potentially lose market share percentage, if that’s a smaller percentage of a much bigger market, they could still grow in real terms.

Analysts from Morgan Stanely have suggested that Apple Pay customers are likely to have higher incomes and more credit alternatives. This could help further legitimize the industry and increase the pool of customers comfortable with using BNPL.

The opportunities for investors

This announcement has highlighted how quickly the tech sector changes. BNPL is an entire industry that has sprung up from nothing in the last decade, spawning multiple multi-billion dollar companies off its back.

On top of new companies in which to invest, this also throws up opportunities for established players to expand, as Apple has with Apple Pay Later. While this means there are plenty of investment options to consider, it also makes it hard to stay on track.

At Q.ai, we’ve created the Emerging Tech Kit to take care of that for you. With this Kit, you can stay ahead of the market on next-generation, cutting-edge tech companies.

Download Q.ai for iOS for more investing content and access to over a dozen AI-powered investment strategies. Start with just $100 and never pay fees or commissions.

Finance

Medifast Still A Growth Stock But Now Value Priced

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Medifast is a growth company that is sporting some attractive value-stock metrics after its shares have fallen to a level that is “simply ridiculous” when measured against its prospects, according to Taesik Yoon, who edits the Forbes Special Situation Survey and Forbes Investor newsletters. The diet business’s equity has suffered with growth shares in general as elevated inflation and aggressive Federal Reserve monetary policy to combat it have caused investors to rethink stocks that benefit from an expanding economy.

A slide of roughly 40% in the past year undervalues a growth story that is taking a hit now but remains intact over the longer term, says Yoon, making the stock a bargain. Yet despite also having a fantastic balance sheet with more than twice as much cash on hand than total debt and paying a very generous dividend that is now yielding almost 5%, Yoon says, Medifast’s stock currently trades at less than 12 times its earnings expectations for the year versus a five-year average of 19.4. That might make sense if you expected the current earnings swoon to persist, but Yoon thinks the secular trend toward healthier living and the company’s coach-based business model will have its earnings back on the rise soon, outpacing the market.

Medifast combines an extensive menu of proprietary nutritional products to help with diet goals and a network of almost 64,000 independent coaches. Most of these are former customers who achieved their weight-reduction goals and are compensated from the sales of company products to their clients. Medifast delivers its food regimens to customers, which aided revenue during the pandemic lockdowns and helped earnings growth accelerate by an average 53% over the past two calendar years. That drove its shares to a record $337 in May 2021, but they have lost more than half of that since. Still, even accounting for the risk of an economic slowdown, Yoon expects Medifast’s heavy spending to improve its technology and distribution infrastructure, which could help raise annual sales to more than $2.5 billion, up almost $1 billion from 2021.

Yoon sees long-term profit growth in the double digits, in line with expected sales gains and with operating margins in the mid-teens.

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Finance

How One Founder Is Helping DIY Investors Navigate Risk

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August 14 is National Financial Awareness Day, and I had the opportunity to chat with John Duffy, founder of Trending Stocks, who went from personally absorbing the 2000 and 2008 market crashes to launching a risk-adverse stock market platform for DIY investors. Here, I chat with Duffy about trend following and investment risk management.

WHAT GAVE YOU THE IDEA FOR TRENDING STOCKS?

It took me 14 years to “get even” after two huge downturns in the stock market – first in 2000 (down 50%) and then in 2008 (down 56%). Losing 14 years of investing time and money was the impetus for me to research a better way in the market. I learned about the ancient trend following strategy – and while it worked well – there was no simple software or program to apply it. Spending hours upon hours charting and graphing doesn’t interest anyone, so I programmed and launched TrendingStocks.IO to automate the research time and hassle on the backend.

HOW DOES IT HELP INVESTORS AVOID RISK?

The trend following strategy inherently has a focus on risk management, so I applied that into the new platform. The risk management helps investor avoid riding the market down. You pre-set a fixed stop-loss amount based on your personal risk tolerance. As a stock goes up, which it should based on the trend following strategy’s identification, so does the stop-loss amount; it rides up. While the stop-loss amount fluctuates up and down causally with the stock, if it gets down far enough to cross below a bottom threshold – we flag you to sell and get out.

WHAT’S YOUR BACKGROUND?

Aside from studying finance, economics and business, I’m a Vietnam Navy Veteran. Oddly enough, this was my foray into programming and coding. I bunked with the first IBM IBM programmers in the world. Their expertise interested me, so I asked a bunch of questions and they taught me the science.

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Not to date myself, but this was before when computers could be owned, only leased. IBM recruited me to program after the war, so I entered as one of few who had learned how to program back then.

IS THIS FOR DAY TRADERS OR DIY INVESTORS?

This is definitely not a day-trading solution. Trending Stocks provides analysis at the end of every business day and therefore, it’s not suitable for day trading. It’s after-hours based.

The tech is suited for a long-term, DIY investor and anyone who’s a newbie or wants to get involved in the market. Aside from managing risk, being a diligent trend follower helps with wealth growth over time.

Once an individual has confidence they’re working with good investable trends and a solid risk management process, it’s an easy plan to follow and platform to supplement that plan.

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Entrepreneurship

Difference Between CFD and Shares

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Contracts for Difference (CFD) trading and share trading vary primarily in that when you trade a CFD, you speculate on a market’s price without acquiring ownership of the underlying asset, but when you trade shares, you must do so.

The main distinctions between a share and a CFD are ownership and leverage. You become the owner of the shares when you purchase shares. Investing in shares is equivalent to acquiring a modest ownership share in a business you support. You must pay the whole share price when purchasing stock shares.

CFDs vs shares

Contract for Difference is referred to as CFD. Without holding the underlying asset, you can speculate on the price of a security by engaging in online CFD trading. A stock, stock index, currency, commodity, or cryptocurrency might all be the underlying security for a CFD. With CFDs, you may join a trade with a lower initial investment because they trade on leverage.

Trading CFDs involves taking into consideration leverage and margin, fees and charges, instrument categories, going short, and asset ownership, which is one of the primary difference between CFD and share trading. Let me elaborate more.

What are Leverage and Margin?

Leverage and margin go hand in hand when trading CFDs. By using leverage, you may acquire exposure to an underlying asset without having to put down the whole amount of money needed to purchase and hold the real asset; instead, you just have to contribute a portion of the position’s overall worth.

The amount you must initially have available to begin a position, known as margin, fluctuates based on the contract size and the underlying asset you want to trade. Margin is not a cost. Based on the pre-determined leverage for the asset class, the first margin need is expressed as a percentage of the contract value. Risk is increased while trading on margin.

When you trade on the Invest trading platform, you must have the full asset value accessible, and you buy shares without applying leverage to your available funds.

Variety of Assets

You may trade on more than 2500 different assets on the Traders Union CFD platform, including shares, forex, commodities, indices, cryptocurrencies, ETFs, and options. You may do this to diversify your portfolio and get exposure to major exchanges across the world.

The Invest trading platform is a marketplace where you may buy and sell stocks and ETFs (ETFs). You may purchase and hold shares of your favorite businesses or any listed ETF on the platform, as well as benefit from the newest IPOs when firms go public, thanks to your access to over 1200 equities and 90 ETFs.

Asset Ownership

You may acquire exposure to an underlying asset, such as Gold (XAU), Apple (AAPL), or EUR/USD, without really holding it by using a CFD. Due to changes in the underlying asset’s price, you will either gain or lose money. The goal of CFD trading is to bet on changes in an underlying asset’s price. The size of the stake and price changes determine any profit or loss.

In contrast, when you purchase a stock on the Invest trading platform, you become the owner of the physical asset and look for a potential longer-term rise in the asset’s value before selling it.

Trader doing CFD trading

A Little More About How CFDs Can Differ From Investing

If your position remains open overnight while trading CFDs, you will be charged an overnight fee. While CFD trading is frequently utilized to speculate on near-term events like earnings announcements or the release of U.S. data reports, stock trading is typically favored for constructing portfolios.

In summary, both CFD and share stock trading offer benefits and drawbacks, and both let you profit from price changes that might result in either a gain or a loss. You should be able to choose which Traders Union platform best matches your trading preferences after you have an understanding of your trading goals. Which trading platform—CFD or Invest—does best for you?

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