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Cyber Week Breakout Stars
See 88% Growth Surge
The holiday shopping season has begun.
And all signs point to it being an especially disappointing season.
Online sales were up 4% in the first week of the season, well behind inflation.
Walmart (WMT) was the leader in Black Friday search volume. The 300%+ surge in interest fits right in with the Downgrade Economy we’ve talked about before.
There was one bright spot though.
The Buy Now, Pay Later (BNPL) services saw a crazy 88% surge in sales volume over the same period last year.
The BNPL industry provided $8 billion in financing in 2020.
That grew to $24 billion in 2021.
And the way things are going, 2022 will be another big growth year.
But here’s the two keys to this story.
First, are BNPL providers a buy?
This kind of growth has to be good and BNPLs make good money.
BNPL services make money by charging a flat fee to retailers (usually around $6 to $7 per sale for independent businesses) and a financing fee to the consumer of 5% to 9% based on their credit score and other factors.
But the problem is BNPL business is extremely competitive.
It seems every financial institution is getting in on the BNPL offers.
So pure play BNPLs may have a tough run ahead for years to come.
Take Affirm (AFRM).
This is a BNPL provider that has an exclusive deal with Amazon.
The company generated $320 million in revenue last quarter, but lost $250 million.
That’s a rough spot to be in as venture capital dries up.
And Affirm isn’t alone either in all this.
So we’ll go to the second key here, what this means for the economy.
Long story short, it further proves U.S. consumers are increasingly tapped out.
They already have high debt levels.
Here’s a chart of U.S. consumer credit and revolving debt over the last 10 years:
Debt levels are have soared.
Meanwhile, savings have plummeted.
This chart shows the total U.S. savings over the last decade:
These trends alone aren’t economy killers.
Altogether, though, there is always a price to pay for debt.
That will mean a longer, deeper recession and a slower recovery.
All signs point increasingly to a deepening recession for non-essential sectors of the economy.
Investors should avoid those until there is some change in the trajectory.