Afterpay’s stock has increased an incredible 971% within 2 years, but has it peaked? (Credit: The Australian)
Afterpay’s (ASX:APT) share price opened at 31.60 Monday morning, representing growth of 971.19% since their IPO a mere 2 years ago. In comparison, the ASX all ords presented 16.58% in the same period. So, what causes a company that provides such an archaic commercial service as ‘buy now pay later’ to concede such astounding growth and is said growth sustainable? A situational analysis of Afterpay’s internal and external strategic factors will clarify its current business environment, position in their industry and company outlook.
Afterpay has a number of internal strengths which have allowed them to thrive in the market. They’ve gained over 11,000 new customers every day for the past 2 months, with a total customer base now north of 5 million. Consequently, FY19 revenue was expressed at over $250 million. Their total assets sit at $820 million (up 109% from FY18), exemplifying strong liquidity.
The rapid growth Afterpay has experienced has exposed their financial weaknesses, such as operating losses increasing by over 20-fold and operating expenses nearly tripling (from FY18 to FY19).
The main growth opportunity available to Afterpay is further international expansion namely in the US market. Afterpay currently services 1.5 million customers in the US, however, with a retail shopping market valued at over $3 trillion USD, it appears to be the most opportunistic market.
The main external threat faced by Afterpay Touch Ltd are competitors offering more attractive ‘interest free buy now pay later’ models. Competitor Zip Co Ltd (ASX:Z1P) is advancing on Afterpay’s market share by acquiring PartPay, internationally expanding and seeing significant stock growth (over 450% growth in under two years). Furthermore, VISA announced in June their own offering of a similar service, consequently causing a 10% drop in Afterpay’s share price.
Afterpay continues to be at the forefront of the ‘interest free buy now pay later’ market, which is rapidly expanding, both in terms of competitors and customers. While consumer confidence and the retail market is on the wane, Afterpay is continuing to grow, with increased sales, customers and total income. In our experience, quality management is pivotal to outperformance, and it appears that Afterpay is no exception.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
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