Afterpay Touch Group Ltd (ASX: APT) shares went nuts in 2018 and — if you believe one side of the debate — should be primed to do the same in 2019.
Who is Afterpay Touch Group?
Afterpay Touch is the owner of the popular “buy now, pay later” app. As of 2018, Afterpay had over 2.5 million registered users world-wide, making it one of Australia’s true technology success stories.
In the United States it is attempting to replicate the same growth it has had here in Australia — just much quicker.
If you want to learn more about Afterpay and get to know what others think, read these articles:
- Will Afterpay shares hit $20? – Jaz Harrison
- Afterpay’s big 2019 – Jack Magann
- Afterpay – The Road Ahead – Emanuel Datt
Why I’m Torn About Afterpay Touch
For the record, I don’t own Afterpay shares. Perhaps that makes me less biased? Stupid? Who knows. One thing is for sure – I don’t have an agenda or message to push.
Here Are 3 Reasons I Don’t Own Afterpay Shares
- Overall, I think it’s bad for people. Unfortunately, Afterpay’s target audience is young people and those desperate to get extra cash. The counterpoint people say to me is: “Afterpay is actually an ethical product because any rational person who understands the time value of money knows that it makes sense to pay over four equal payments rather than outlay the cash upfront.” It’s a valid point because it’s specifically right and people that are in need of cash for, say, dental surgery, will benefit. However, that line of argument is based on one key assumption: people are rational. Some people might be rational. Most aren’t.
- It chugs down capital. Afterpay extends the payment cycle to consumers by providing them with credit. It can offer this ‘free’ money to consumers by having a loan facility at a bank and charging, in effect, 16% interest – thanks to the capital velocity. Picture an old coal-fired train (Afterpay) and a bloke shovelling capital into its engine to keep it moving forward. Afterpay will be capable of having great margins due to the arbitrage of its capital flow, but it has a substantial tail risk and no-one can tell me what happens when the music stops.
- A good time, not a long time? The best products on earth add value to every stakeholder – the user, the middleman/woman and the producer. Afterpay’s network effect is most powerful because it can add value to the retailer. Telling a low-margin retailer “you’ll get 10% more sales by taking Afterpay payments” is a powerful thing. But does the novelty of Afterpay wear off? What’s the half-life? Perhaps it’s got a few years to run. Perhaps it doesn’t. I really don’t know that answer.
Here Are 3 Reasons I Would Own Afterpay Shares:
- The US market is yuuge mate. This is the classic line pushed by the bulls. Afterpay appears on track to crack the US market with the Kardashians and hundreds of thousands of others already active on the platform. A listing on the NASDAQ surely wouldn’t be far behind some modest success over there and will be icing on the cake of its US venture — and a boon for ASX shareholders.
- It could be very sticky. Ethics aside, platforms which provide credit (e.g. banks) tend to do very well because they are effectively signing an annuity with a customer. In English, that means a customer is locked into the product. While Afterpay’s average contract is shorter than a personal loan or credit card provider, it could have staying power.
- Well managed. So far, it appears Afterpay has been very well managed. It has already faced numerous challenges from the media, from regulators and consumer groups. And while that was happening the company didn’t break its stride overseas.
What Now
They say envy is the worst personal trait of a long-term investor. After all, there’s nothing worse than your best friend (or another investor) getting ridiculously rich, right?
However, if I look back in five years and think ‘Afterpay did really well’ I highly doubt I’ll be saying to myself, ‘I should have put my ideals aside and bought shares’.
At the end of the day, there’s so much water to go under the bridge for Afterpay to justify its current share price and there are 2,000+ other shares in Australia alone which could be just as rewarding. I don’t need to own every tech stock on the ASX, just a few handfuls and maybe a couple of the best ETFs in Australia.
For example, an ASX software company I bought recently has seen its share price explode in the past two years – yet most people probably don’t know its name.
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