The Afterpay (ASX: APT) share price has jumped 10% at the ASX’s open on Tuesday after the buy now, pay later company gave a COVID-19 update.
What is Afterpay?
Afterpay is the owner of the popular “buy now, pay later” app. As of 2019, Afterpay had over 4 million registered users worldwide, making it one of Australia’s true technology success stories. Afterpay is trying to emulate its outstanding success in Australia by expanding its reach into the UK, using the ‘Clearpay’ brand name, and into the USA, where it has signed major social influencers to endorse its service.
What did Afterpay announce?
Afterpay has given a large update for the March 2020 quarter.
Afterpay said it’s too early to estimate the broader economic impacts. But it said it has a number of advantages to respond like its business model and strong capital position.
Some of the highlights:
In the financial year to date (YTD) the company has generated $7.3 billion of underlying sales, up 105%. March was the third-best month on record, behind the seasonally higher months of November and December 2020. Q3 underlying sales were up 97%.
Afterpay said its income margins for March and YTD were higher than the first half of FY20 (HY20).
Gross losses for March were approximately 1%, around the same as HY20.
The BNPL company said it had preemptively made risk setting adjustments which have helped loss performance in the second half of March and early April. The net transaction margin (NTM) YTD is around 2% and in line with HY20.
In March 2020 Afterpay had $541.1 million cash and $719.2 million of liquidity. It said the mature ANZ region continues to be profitable and underlying cashflow positive. Around 88% of the total global underlying sales were online.
In the second half of March, Afterpay said its sales were 4% lower than the first half of the month. UK sales were 15% lower.
Is Afterpay a buy?
Afterpay said it experienced positive growth in April, “in all markets with average daily underlying sales up approximately 10% on the second half of March globally”.
A solid update, Afterpay is doing well for now it seems. However, for me, there are big question marks about its profit prospects — which means it’s hard to value the shares. I prefer to invest in technology shares which are easier to value and have a demonstrated track record for growth.
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Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.
