The Afterpay Ltd (ASX: APT) share price has gone up almost 300% in 2020. It has been an extraordinary year. What could happen next for Afterpay?
A crazy year
The Afterpay share price started the year at just over $30, it plummeted to $8.90 in March 2020. Since the start of the year Afterpay shares have risen approximately 300% to just over $120.
The buy now, pay later business has continued to report strong levels of growth throughout the year. In the FY20 result it said that global underlying sales went up 112% to $11.1 billion, active customers rose 116% to 9.9 million and active merchants went up 72% to 55,400. Afterpay total income grew by 103% to $502.7 million.
In August 2020 Afterpay also announced that it was planning to accelerate its mainland Europe growth with an acquisition called Pagantis. Afterpay thinks the European Union is the next logical step for international growth due to its large ‘millennial’ population, large fashion and beauty retail markets and significant debit card usage. The buy now, pay later business disclosed that the addressable ecommerce market in the EU exceeds €300 billion.
Its FY21 first quarter had a strong underlying sales performance in all regions. Underlying sales went up 115% to $4.1 billion for the quarter. This was also 9% higher than the underlying sales achieved in the fourth quarter of FY20. In terms of its annualised underlying sales growth, the run rate had reached $16.4 billion, up from $15 billion in the fourth quarter of FY20.
Finally, in November 2020, Afterpay said it hit a new milestone by delivering over $2.1 billion of monthly underlying sales, more than doubling the $1 billion of underlying sales in November 2019. This was an increase of 112%. November is a very important month because it included the trading of Black Friday and Cyber Monday sales period. Australia and New Zealand underlying sales went up 54% to $0.9 billion. US underlying sales went up by 186% to $1 billion. UK underlying sales grew by 315% to $0.2 billion.
What next for the Afterpay share price?
I’m not sure what the Afterpay share price is going to do next week let alone next year. It’s unpredictable and it keeps rising. But it’s not as though Afterpay is making 300% more profit or even 300% more income than last year. But shares keep rising as it expands into newer geographies. And it may rise more in 2021.
The rise seems very frothy to me. Will investors eventually expect Afterpay to make a profit some day? There is some major competition like PayPal which could harm Afterpay in the future. I don’t think I can invest in Afterpay shares with that much expectation and that little profit (even at the EBITDA level).
There are other ASX growth shares in the payments space that are already profitable but are still growing strongly like Pushpay Holdings Ltd (ASX: PPH) and EML Payments Ltd (ASX: EML) that I’d rather invest in.
