Afterpay has rallied on the back of an extremely successful international expansion strategy (Credit: APT)

Afterpay (ASX: APT) has been by far the most successful company at executing its strategy in Australia’s rapidly expanding buy now, pay later space. The company had strong annual results this year, achieving sales growth of 140% across their business. This result was marginally ahead of Zip Co’s (ASX: ZIP) 108% revenue growth, further increasing their dominance within the industry. Nevertheless, since Afterpay is already worth significantly more than competitors, this is not a reason to choose the company as your buy now, pay later investment since their successful execution is already in the price.

Since the market has been rapidly following their US expansion strategy, it is worth noting that their US business grew revenue by 6447%. This figure is not quite as great as it may seem however, since the business was not operational in the United States for all of FY18. Nevertheless, recording almost a billion dollars of sales so soon is still a noteworthy achievement. Their maiden result included $5.6m of sales in the UK, a figure that was held down by the fact that they only recently entered the UK market through their acquisition of ClearPay. The company has also signed a high-profile partnership with Visa, which will help them achieve the growth that they are targeting in the market.

One concern of Afterpay bears is the company’s difficulty in monetising their product offering. They have achieved a high level of penetration in the Australian market but are still yet to turn a profit, despite being valued at $7.71bn. While this keeps many investors away, it is important to recognise that at 90% yoy growth, their ANZ business is nowhere near maturity despite being the oldest part of their offering. The other main concern is the level of bad debts in the business. While their level of bad debts is low and fell significantly on the result due to a growing base of customers with a strong repayment history, bears worry this could rise sharply in a recession. This factor explains a large proportion of volatility in the company’s share price, but it remains to be seen whether that volatility is justified.

 

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August 30, 2019