Afterpay Ltd (ASX: APT) is an Australian financial technology company operating in the United States, United Kingdom, New Zealand and Australia. Afterpay has a market capitalisation of A$6 billion.

Update on COVID-19

The coronavirus (COVID-19) was first reported from the Wuhan province in China on 31 December 2019. The World Health Organisation data shows a total of confirmed cases of 1,776,867 and 111,828 deaths globally. As of today (8 April 2020), there have been over 6,366 confirmed cases in Australia.

What are the most recent business updates for Afterpay?

Afterpay management notes that year to date underlying sales is $7.3 billion, growing 105% compared to the prior correspond period. This HY20 growth rate is in line compared to HY19. March 2020 was Afterpay’s third largest underlying sales month on record, behind the seasonally higher months of November and December 2020, while Q3FY20 underlying sales increased 97% on Q3 FY19. Gross Losses for the month of March is estimated to be approximately 1.0% (unaudited), in line with HY20, notwithstanding increased contribution from newer markets that are initially higher loss early in lifecycle.

Another positive is that Afterpay is not going to need to raise any additional capital in the foreseeable future due to the company’s strong balance sheet. Afterpay has $541 million of cash and $719 million of total liquidity, higher than last reported results for HY20.

What are the main drivers of this result?

The main drivers of this positive result in respect to sales is accelerated growth in the United States (US) (up 263%) and Australian and New Zealand (up 40%).

It is noted that in Afterpay’s Australian business, since the government-enforced COVID-19 related retail trading restrictions commenced, growth in sales began to moderate from mid-March 2020, which is expected to continue.

What is the outlook for Afterpay?

Afterpay is continuing to grow the company’s global and domestic presence. Afterpay reported this quarter (Q3 FY2020) several new merchants that will go live with Afterpay this quarter or have signed with Afterpay. These new merchants are as follows: In Australia, eBay, Samsung, Lancome, YSL Beauty, Kiehius, Kookai, Georgio Armani Beauty, Horseland Online, Pet Food Australia, Salt & Pepper. In New Zealand, Sunglass Hut, Mitre 10, Hush Puppies, Number One Shoes, Hannah’s, Footlocker, Aje, Estee Lauder, RY, In the US, SHEIN, American Eagle, Romwe, The Hut Group, Perricone MD, Furla, Soko Glam and in the United Kingdom, Kookai, Oh Polly, Elemis, Charles & Keith, RM Williams, Size, Tessuti, Foot Patro.

Afterpay is also planning to expand into Canada, entry into this market is expected to be this calendar year. In addition, Afterpay goal is to exceed the company’s underlying sales mid-term target of approximately $20 billion by FY22.

What is that market’s reaction?

The market reaction to Afterpay’s announcement today is positive, as Afterpay’s share price is up around 21%. Although Afterpay could be considered as a high-risk investment, the recent slump in the share price over the last few months from around $40 to today’s price of around $26.80 could provide a buying opportunity for investors.

 


 

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April 14, 2020