When Block announced in August 2021 that it was acquiring Afterpay in an all-stock deal, Block’s share price valued the Australian buy now-pay late purchase at $29 billion.

But by the time the deal closed on Jan. 31, Block’s stock had dropped so much that the acquisition price tag was only $13.9 billion, based on the 113,387,895 shares offered, according to a Block annual regulatory filing.

Block, formerly known as Square and led by Chairman Jack Dorsey, bought Afterpay betting the trendy financing provided by BNPL would line up with a bid to offer more payments services to merchants worldwide.

With BNPL darlings like Klarna and Block rivals such as Stripe now writing down the value of their companies, it’s possible Square parent Block will have to take a charge for its Afterpay purchase, given the newfound challenges facing BNPL companies amid the current economic climate. Block reports its second-quarter results on Thursday.

Ayako Yasuda, a finance professor at the University of California Davis Graduate School of Management, wasn’t surprised that Block took advantage of its high stock price to make the purchase, given stock transactions are more common when an acquirer’s stock is riding high.

What the future holds is less certain. After the deal closed in January, the goodwill on Block’s balance sheet increased by about $12 billion. “They essentially paid for the value of the brand,” Yasuda said.

In retrospect, Block probably paid too much, in light of high inflation, interest rate increases and recession worries now that affect the environment in which BNPL companies operate, Yasuda said. That $12 billion of goodwill “was based on assumptions of continuing high growth in future cash flows,” she said. “And that high growth in future cash flows looks less rosy” now.

As macroeconomic headwinds have battered tech behemoths and fintech startups alike in recent months, the payments sector hasn’t avoided storm. Buy now-pay later rival Klarna and digital payments company Stripe have had to slash their valuations. Shares of the biggest U.S. BNPL company, Affirm, have dropped about 70% this year.

With most BNPL companies still posting net losses, it’s no wonder they’re so susceptible to an economic downturn. “BNPL products could become loss leaders as funding costs and credit losses normalize, leaving BNPL platforms that are heavily reliant on pay in four products more vulnerable to profit pressure and capital erosion,” analysts with Fitch Ratings wrote in a July 28 note.

Still, there’s a chance Afterpay’s valuation benefits from the company being part of Block “because it enjoys the effects of being part of this larger competitive player than as a standalone company,” Yasuda noted. However, Block has lost a lot of its market value since the acquisition, too, she noted. 

If Block does write down the purchase, Yasuda estimated it could be somewhere in the range of $6 billion to $10 billion for Afterpay. A Block spokesperson didn’t respond to requests for comment on the prospect of writing down the purchase. 

A reset of Afterpay’s valuation is already evident, given Block’s share price decline, said Wolfe Research Analyst Darrin Peller. “They’ve effectively paid less for Afterpay,” he said.

But it’s not really the firesale it may look like because Block is still paying with 113 million of its shares, said Erik Gordon, a professor at the University of Michigan’s Ross School of Business.  

All companies face the possibility of a write down of goodwill if a business isn’t doing well, Gordon said. Compared to paying for acquisitions in cash, paying in stock and carrying the assets at the lower value of that stock gives Block “a nice cushion against write downs,” he said.

As companies assess fair market value of certain assets on their balance sheets at year’s end, “sometimes you do see some of that get marked down,” if there’s been a significant change in market conditions or valuations, said Jason Kupferberg, an analyst who follows the company for Bank of America.

He contended those watching are more focused on “the fundamental performance of the Afterpay business,” than whether Block will have to take an accounting charge. The purchase “just closed 6 months ago,” Kupferberg said. “It’s a little premature to judge how successful, or not, the acquisition will ultimately be.”

Block writes down the bitcoin valuation to the lowest it hits each quarter, so “it seems like they’ve tried to create somewhat conservative accounting practices, which might lend itself to writing something like this down,” said David Koning, an analyst at the financial firm Baird.

Investors generally expect the outlook for BNPL revenue and earnings to be less this year than a year ago, Koning said. Given Klarna’s valuation was cut and Affirm’s stock has fallen, “is Afterpay really worth the $12 billion even?” he said. “Probably not, given the others have fallen a lot more.”

Whatever Block shareholders think of the valuation, Afterpay shareholders may be more disappointed. That’s because there weren’t “collar” terms on the acquisition agreement that might have kept the valuation of the deal from dropping so much.

Stock deals typically afford the acquisition target some sort of protection against a drop in the value of the stock they’re getting, Gordon said. The terms of the agreement didn’t include a collar to ensure that, so “if you are an Afterpay shareholder, you are angry,” he said. 

Afterpay shareholders, including the linchpin Bank of Spain, approved the acquisition earlier this year. Now, Block has to deal with any fallout.