SumZero
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4th August 2021
SubPrime Bull: Fund Manager Judd Arnold Says KPLT's "land grab" in BNPL is a BUY NOW
8/16/21 Update: LCRM's Judd Arnold reports that he has closed his position on KPLT: details are here https://sumzero.com/pro/research/ideas/19975.
Lake Cornelia Research Management CIO discusses his bullish thesis on Katapult Holdings Ltd. (US: KPLT) with SumZero CEO Divya Narendra. Read Judd's 60 page memo for free with a SumZero login here: https://sumzero.com/pro/research/ideas/19975
Presentation slides available here: https://www.icloud.com/iclouddrive/09I_mT6N3SVvX2XSbdQcRSZ3A#LCRM_KPLT_CALL_8-2-21
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00:00 Start
00:10 Divya Narendra intro
00:40 Buy Now, Pay Later (BNPL) trend in consumer spending
00:50 Square (US: SQ) acquisition of AfterPay
01:05 Jargon
01:24 Judd Arnold intro and discussion of BNPL and subprime financing space
01:45 BNPL segmented across verticals
02:13 "Pay 4", Average Order Value, (AOV) and BNPL (Slide 7)
03:15 Advantages of financing over credit cards
03:33 Volume of receivables
03:55 Square and the AfterPay deal
04:12 AfterPay's penetration in the Australian market
04:26 KPLT's higher AOV
04:37 Competition from Acima and Progressive (US:PRG)
05:02 Market demographics, subprime credit customers
05:11 Wayfair (US: W), furniture, and auto parts
05:29 7-month average on KPLT leases
07:18 Savings relative to compounded credit card interest
07:43 How defaults are handled
09:10 How payments are handled
09:44 The two things American consumers can't live without
10:44 BNPL and bad debt expense
11:01 Direct lender OPFI's 35 - 40% credit losses
11:20 KPLT's 3% credit losses
11:40 Is KPLT pure fintech? (Slide 11)
12:06 PRG has over 2000 employees
12:18 KPLT has 80-90 employees
12:43 KPLT partnership with Affirm (US: AFRM)
14:11 KPLT's free cash flow (Slide 20)
15:30 How KPLT manages client credit risk
16:00 Credit data granularity "beyond FICO scores"
16:57 Algorithms bidding on extending credit to Wayfair customers
17:10 "KPLT winning on two fronts"
17:30 KPLT bidding aggressively on existing customers
18:10 KPLT holds data for 1.5M subprime credit customers
18:20 KPLT algos faster to respond than competition
19:05 Integration, diversification, partnerships
19:25 Quarterly revenue determinants
21:35 Addressing concern's about Wayfair's '21 Q2 (Slide 17)
22:18 "Wayfair risk isn't about the quarter" (Slide 16)
22:45 KPLT's partnership with Wayfair is an advantage
23:25 Total addressable market
23:54 Customer acquisition potential (Slide 15)
24:48 Most small merchants only have one subprime solution
25:40 "This is all a land grab right now"
27:15 PRG's 3 biggest customers
27:43 BNPL market is growing
29:20 KPLT history, founders, and early investors
31:58 KPLT's relationship with CURO Group (US:CURO)
32:16 KPLT 30-40% of CURO's market cap
32:26 How KPLT went public: SPAC, PIPE investors, etc
36:16 Recent dip and free cash flow
39:50 KPLT's investments in growth
41:00 Understanding KPLT's business (Slide 20)
41:41 Biggest threats to KPLT
42:31 Waterfall partnership with AFRM (Slide 9)
43:53 Barriers to entry in subprime
45:54 Macro-risks to BNPL in COVID-19 era
48:20 Square/AfterPay and KPLT's recent performance
49:35 PIPE unlock likely a non-event
50:45 Q2 earnings expectations (Slide 14)
52:03 Possible catalysts
55:15 Target price by end of 2022
56:45 Kafene
58:14 Closing remarks
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