Could Afterpay Touch Group Ltd (ASX: APT) be described as the new PayPal (NASDAQ: PYPL)?
Afterpay Touch is the owner of the popular “buy now, pay later” app. As of early 2019, Afterpay had over 4 million registered users worldwide, making it one of Australia’s true technology success stories.
Is Afterpay The New PayPal?
One of the main strengths of PayPal is that it initially grew thanks to eCommerce growth, which is exactly how Afterpay rose to fame in Australia as well.
These days around 10% of all eCommerce in Australia is processed through the Afterpay platform according to the NAB Online Retail Sales Index December 2018, which is an excellent position to be in.
Afterpay is attracting an impressive amount of the future key spending generation – around 27% of Australian ‘millennials’ are apparently Afterpay customers.
The company has been growing very impressively, even after years of rapid growth. In a somewhat ironic development, the company is growing its revenue from in-store point of sale with around 20% of Australia and New Zealand’s gross merchandise volume from in-store.
Afterpay said that in the 11 months to 31 May 2019 the company achieved underlying sales of $4.7 billion, representing growth of 143%. It has over 4.3 million active customers with 30,600 active merchants.
It’s also growing rapidly in the US which is a huge potential market. After just one year of operations, it has achieved 1.5 million active US customers with 3,300 active US merchants with underlying US sales of $780 million in the 11 months to May 2019. It has annualised underlying sales of $1.7 billion.
All of this growth is very useful for Afterpay because it attracts fees from merchants on every transaction that goes through its platform. Taking a clip of every sale is a very attractive business. model
What investors are becoming increasingly excited about is that the company is expanding into other verticals beyond just retail.
For example, Afterpay revealed that in less than 10 months it had signed up more than 1,100 dental and optical practices in Australia such as Specsavers and National Dental Care. It’s also looking towards pharmacy and the ‘travel’ segment.
Afterpay said that its customers are providing feedback saying that’s service allows them to get access to the treatment they need as more Australians opt out of private health cover.
Is Afterpay A Buy?
Afterpay may be one of the most promising businesses on the ASX, but there is plenty of competition in the sector. PayPal, MasterCard and Visa aren’t going to let Afterpay come in and steal their lunch.
ASX businesses like Zip Co Ltd (ASX: Z1P), Splitit Ltd (ASX: SPT) and FlexiGroup Limited (ASX: FXL) also want a slice.
Can Afterpay win with so much competition? I’m not sure it is as likely as the current share price suggests, which is why I’d rather invest in the growth shares in the free report below.
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