This week saw Afterpay’s share price steadily increase, up around 24% since Monday’s open share value, trading at $14.22 per share at the time of writing.
On Wednesday, Afterpay Touch Group Limited [ASX:APT] climbed to $14.18 before dipping and edging once again higher today.
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Let’s get to the bottom of this. For any good company, one thing is very important: the early engagement consumers. And this is exactly the sort of thing that helped drive — and is still driving — Afterpay’s value.
Afterpay’s share price hike driven by engagement
As you have probably noticed, Afterpay took 2018 by storm in both practice and in share price gains, before faulting slightly in the last two months following pressure from ASIC.
In its first week of going live, it was the second most used payment method, closely losing to credit cards. But in this time, an uplift of 25% in average order value occurred according to Steve Madden Group, a footwear and clothing retailer.
Afterpay has a unique business model, describing itself as a free service to consumers who pay on time. It’s also interest free, and relies on fees paid by the retailer and not the customer.
On 28 November the company released results for its 2018 Annual General meeting, which talked favourably about its future. This included working with ASIC after its review of the business.
After its 10-month review, ASIC recommended Afterpay as well as other sector participants to be regulated through product intervention powers.
ASIC had this to say:
‘In using the product intervention power, we would look for interventions that represent the most targeted and appropriate regulatory solutions to address identified consumer detriment.’
Afterpay has been collaborating with ASIC since the start of its review at the beginning of this year, as well as responding to specific data requests. One thing that investors should be pleased about is ASIC’s statement saying Afterpay is different to traditional credit products.
The results of the ASIC review are set to increase public confidence in Afterpay services, as well as safeguard additional consumer protection in the event of misuse or unintended product use.
Leading into 2019, investors can expect that the Christmas holiday season will be driving Aterpay’s product use. This could affect Afterpay’s share price in the following months.
Of course, investors should be aware that extending ASIC’s intervention power could, if taken too far, be less than desirable for shares.
Yet, as stated in Afterpay’s announcement, independent research has found that 93% of Afterpay users don’t get late fees, and 75% have never incurred a late fee.
So it seems to stand that Afterpay’s business model relies on good faith and responsible consumers.
One can only hope this continues into the holiday season.
For Money Morning
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