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Product Review Img Vertical

Date : 08/12/2020

Afterpay Limited



Market Cap : $26.8 Billion


52 Week Range : $8.01 - $105.80

Share Price : $95.68

Afterpay's global expansion plans are underway. We recommend members to "Buy" as there is still a lot more to come.

Company Analysis

Afterpay Limited (ASX: APT) was covered by us on the 11th of September, and we recommended our members to buy at a stock price of $73.87. Fast forward three months, Afterpay now trades at $95.68 – gaining close to 30%. It is an ASX-20 stock with a high growth rate. During 2020, Afterpay has returned 226% to shareholders.



When we analysed the stock in September, it was trading at an all time high on the back of a very successful FY2020 performance. The firm had seen tremendous growth in all their geographical segments. The relatively captured ANZ market where Afterpay has a very strong lead over its competitors saw a growth of over 50%. The American market is the most crucial for Afterpay given the spending power and strong consumer base. USA growth numbers were over 300% for the year. The UK segment is very nascent, but it does come with a lot of potential during FY2021 and beyond. We are expecting growth rates to be over 300% for the European region.

Afterpay has not been profitable until FY2020. This is due to the high costs involved to capture markets. The marketing expenses and cost of goods sold have an increasing trend, just like Afterpay’s revenues. In the last couple of years, the cost of goods sold has been increasing by over 100% year-on-year.

The marketing expenses on the other hand has been decreasing. This is due to the phenomenon “network effects” that we hear companies talk about. Afterpay has become such a big global brand that they are able to attract both – merchants and customers without spending as much as they used to on sales and marketing.

Members can click here to view our previous report where we have gone over the FY2020 performance in detail.

Stellar Q1 FY2021 Performance

The Q1 Update of FY2021 saw a strong performance once again. The government’s measures to increase spending in Australia has certainly helped. The Q1 FY2021 underlying sales saw an increase in all three major markets – ANZ, USA, UK.

  • ANZ saw a growth rate of 63% compared to the previous corresponding period. The quarter ended with $4.1 billion of underlying sales.
  • In the USA, underlying sales was $1.6 billion, 229% increase over Q1 of FY2020.
  • The UK market saw sales grow by 346% with underlying sales closing at $0.3 billion for the first quarter.

The increasing trend in active customers and merchants continued as well. Again, the UK has been the top performer in adoption rates as it is the newer of the other markets Afterpay operates in. Merchants in the UK grew by 1038% during the quarter – a number worth mentioning. Afterpay’s total active customers across all markets saw a 98% increase compared with pcp, while active merchants saw a 70% increase over the same time frame.

The customer adoption rate in ANZ is slowing down and we expect this trend to continue given how mature the BNPL sector is in this region. In the USA, an average of 12,500 new customers have been added every day during the quarter. The merchant adoption however, continued, as more retail merchants have been benefiting from an increase in the number of customers once they have a BNPL solution available. ANZ active merchants saw a 50% increase and the US active merchants saw a 159% increase during the quarter ended 30th September 2020. Black Friday day alone saw 1.2 million referrals sent to merchants in the USA. Afterpay reported 30% and 25% increase in basket in the US and UK, respectively. Given how consumer spending has historically performed in the lead up to the holiday season and during the season, we are expecting an outperformance during the second quarter – especially in the USA and UK region.

FinTech allows for easy integration through technological advancements. These intangible benefits that allow firms such as Afterpay to increase its active customer. The partnership with Westpac adds another channel for customer acquisition for Afterpay. In addition to the channel, Afterpay customers will be benefited with a better cash flow management tool. Afterpay will be able to offer its customers an option to open an account and deposit money without having to leave their platform. Arguably the best part of this partnership is the fact that Afterpay will not require a banking license to accept deposits that are guaranteed by the government. This opens up an option to enter into the banking space for Afterpay.


Afterpay has also planned to expand further in Europe and Asia. They acquired Pagantis – a well known player in Europe. This acquisition will fast track the adoption of Afterpay in Spain, France, Italy, and Portugal. Since Pagantis is already licenced to operate in these markets, Afterpay is currently just pending a regulatory nod from the Bank of Spain.

Plan for Asia is said to be well on its way. The Asian markets come with very population and consumer numbers. With South East Asian economies projected to grow very strongly in the next decade, there are a log of headwinds to come from this region in terms of consumer spending. Afterpay has been targeting the Singapore and Indonesian markets to enter this region.

Source: Afterpay Limited

Most of the Gen X cohort still rely on credit cards for their payments. Millennials have been the biggest adopters of Afterpay and BNPL technology. Gen Z are arguably the worst affected due to the pandemic. The jobless rates across the world have affected the young population the hardest. However, there is a margin for growth in this cohort. The biggest tailwind for Afterpay is the Millennials who are driving consumer spending from ecommerce sales. We expect this trend to continue for the next few years.

Afterpay is starting to become profitable. FY2020 saw an EBITDA of $9.5 million. The industry is driven by low margins and hence, very high volumes of sales are required for a BNPL company to become profitable. However, once the growth barrier is surpassed, Afterpay’s spending will start to reduce – resulting in higher profitability. We expect the firm to continue to grow at over 100% for the next couple of years. We also estimate reduced spending in markets such as ANZ and USA due to the network effects benefit that are in place. The margins in the BNPL industry will become thinner due to the number of competitors. In order to combat this, Afterpay would have to invest in their technology and product. Customer retention and growth rates are thus important metrics to keep an eye out for. Our forecasts suggest that EBITDA margins will stabilise around FY2023 at around 12%-14%.


Afterpay’s growth story is far from over. The USA, Europe, and Asian markets are all still there for the taking. The industry as a whole has a lot of tailwinds, and Afterpay’s strong business is positioned to take advantage of this. We continue to issue a “Buy” recommendation for Afterpay.


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