Buy-now-pay-later rockstar Afterpay (ASX:APT) releases its 2020 financial year results today.
The company’s share price has been on a tear since it plunged to $8.90 on March 23 this year as uncertainty about the impact of Covid-19 hit markets.
Last night it closed down slightly at $90.72 at Wednesday’s close, having hit yet fresh record of $92.48 on Tuesday. Afterpay floated in June 2017 at $2.95 a share. It’s made co-founders Nick Molnar and Anthony Eisen billionaires. The business now has a market cap of around $25 billion – roughly the same value as supermarket giant Coles, putting it in the top 20 companies on the ASX.
Last month Afterpay raised $800 million in new equity, topped up to $1.05 billion by Eisen and Molnar each selling down a 10% stake in their existing holdings as part of the raise.
Afterpay’s share price jumped more than 10% this week after announcing plans to acquire Spanish BNPL Pagantis for €50 million (A$82m) to expand in the European Union through its Clearpay brand.
It’s also been one of the most volatile stocks on the ASX, although right now, it’s catnip for investors, and Chinese tech giant Tencent Holdings, the company behind WeChat, must be feeling pretty pleased with itself right now after spending $300 million in May for a 5% stake in the BNPL’s share price was under $30.
Right now, Afterpay is the Usain Bolt of fintechs, leaving rivals such as Zip, Humm, OpenPay, Sezzle, Splitit, and Klarna (which CBA has a major stake in), in its wake.
Carl Capolingua, Market Analyst, at ThinkMarkets Australia told Startup Daily that right now, the BNPL space is hot.
“Investors love growth stories. This sector has it in spades,” he said.
“To be fair, what a great product. Compared to credit cards – and all the negative connotations there – it helps millennials get the stuff they want without blowing their cashflow to pieces.”
Capolingua’s a buy guy – ThinkMarkets has that call on everything in the BNPL space – which makes last October’s sell rating by UBS even more entertaining with the benefit of hindsight.
UBS put sell advices on both Afterpay and rival Zip (whose results are also out today) 10 months ago, suggesting Afterpay’s price would halve over the next 12 months – it was around $37 at the time – with a price target of $17.25. By April this year, UBS changed its guidance to $13 with a sell. The shares will need to lose more than 80% of their value in the next 8 weeks for that outcome. After after a trash year, few are that pessimistic.
The UBS price target for Zip was $4.80 last October. Today the share price jumped 27% to $9.65 after Zip (ASX: Z1P) told the market it was launching a business lending product and partnering with eBay.
Right now the UBS team must feel a little like being one of the publishers who rejected JK Rowlings’ manuscript for Harry Potter.
Nonetheless their caution at the time was more than justified (and remember they fell below $9 in March, so if you had sold, the re-bought then, well…).
Meanwhile CBA is certainly chipping away on the need for regulation in the BNPL space – something Afterpay is resisting and an imposition it has benefited in managing to avoid it thus far.
And few write about BNPL stock valuations without mentioning the word “bubble”.
Now cast you mind back 12 months to the FY19 annual results and this picture:
Afterpay’s net revenue, at $251.6 million, was more than double FY18’s $113.9m, while the statutory loss before tax increased from $9 million in the previous year to $43.8 million which the company says “was impacted by one-off and non-cash items (including share-based payment expenses and the initial application of new accounting standards)”.
Fast forward 12 months and Afterpay is expecting to post a maiden profit. Its continuous disclosure of performance is part of what’s sent investors into a frenzy. August 19’s update sent shares up around 7.5% to over $80.
The company is expecting to post its maiden profit, with full-year earnings before interest, taxes, depreciation and amortisation (EBITDA) at $44 million excluding significant items, a 96% turnaround on previous estimates. The full-year net transaction loss is expected to be 0.38% compared to 0.55% in its July forecast.
Here’s what’s expected today:
- Revenue $11.1bn, up 112% on 12 months ago.
- Underlying NPAT $44m
- Customer numbers up 116% to 9.9m
- Merchant numbers up 72% to 55,400
- Net Transaction Margin: 2.25%
- Net Transaction Loss: 0.38%
Carl Capolingua from ThinkMarkets says that huge growth potential remains in the sector and what everyone will be looking at in the results will be the run rate since June 30, details on any further expansion plans, and guidance.
“According to Worldpay, the market was 3% of all retail e-commerce payments in Australia in 2018, 8% in 2019, and on that growth rate, it could easily represent over one-eighth of payments in 2020,” he said.
“To put this into perspective, credit cards are currently around 32% of sales.”
Capolingua adds that the winners and losers in the BNPL space have yet to emerge – third-placed Flexigroup’s results on Wednesday suggest it’s acutely conscious of that, announcing a $140 million raise and a rebrand to Humm, the name of its BNPL product.
“I think the next stage of this rally will see some prosper at the expense of others – rather than all of them going up at once,” Capolingua said.
“And of course, eventually growth rates must slow, and so too likely will share price appreciations…but that’s a worry for another day!”