The Afterpay Touch Group Ltd (ASX: APT) share price has fallen 6% in early reaction to the HY19 result, is it a buy?
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.
Here’s What Afterpay Reported
Afterpay reported that its total income grew by 85% to $112.3 million. Underlying sales, meaning the total value of sales processed through the Afterpay system, grew by 147% to $2.3 billion.
At the end of December 2018 Afterpay had 3.1 million active customers which was 118% more than a year ago. As of today, Afterpay has around 3.5 million customers. Afterpay also reported having 23,200 active merchants at the end of December, up 101%, and around 25,300 as of today.
Afterpay said its gross losses of 1.1% of underlying sales during the half year was down from 1.6% in the prior corresponding period.
Late fee income as a percentage of total Afterpay statutory income was 17.6%, substantially less than the 22.5% reported a year ago. Afterpay’s statutory net transaction loss was 0.6%, at the bottom of the target range of 0.6% to 1%.
All of the above says that Afterpay has grown significantly, but its customer base is more sustainable.
Afterpay said that were it not for new accounting standards, underlying EBITDA would have grown by 19% to $17 million (click here to learn what EBITDA means).
The buy now, pay later company said that continued scale benefits and investment in risk management capabilities and processes has enabled Afterpay to reduce gross losses whilst also reducing late fees.
However, the company reported a loss before tax of $21.5 million, which compares to a $0.7 million profit before tax last year. This was due to share-based payments, international expansion costs, higher net interest costs and higher depreciation & amortisation charges.
Afterpay Global Expansion
The company said it’s on track to have over 1 million active customers and 2,000 active merchants in the US by the end of March, which would be achieved in less than 11 months of operation. In the 8 weeks after the 2018 Christmas period, the US customer base grew 40%.
Urban Outfitters has agreed to be the launch partner merchant for the UK, which is expected to launch in the next few months.
Afterpay Australia
Afterpay said its average customer’s age increased to 33, meaning that is older customers are sticking with the platform. This is important because by 2020 millennials will be the more than a quarter of the global population and have the biggest spending power.
By FY22 the company said it is targeting $20 billion in GMV (gross merchandise volume).
Some of Afterpay’s newest partners include Adidas Australia, Reekok Australia, Lush NZ, OPSM NZ, BIG W and Bupa Optical.
Afterpay is also being trialled at Australia’s largest medical imaging provider, I-MED.
Is Afterpay a buy?
Afterpay said that its balance sheet is well positioned to support expansion plans with its previous equity raising and debt facilities, including a new US$300 million facility which is expected to complete in the next few months.
With the Senate inquiry concluding, Afterpay is confident about its future.
Whilst the performance of the business has been impressive, I can’t say the current share price looks like a buy to me with how much expectation is built into the value. Buying growth shares is usually a good idea, but not at any price.
2 ASX Shares Trading At Better Value Than Afterpay
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