Why Afterpay’s Share Price has Rocketed 11.93% Today

The Afterpay Touch Group Ltd [ASX: APT] share price has been the one to watch on the ASX this morning. Despite a note out of Goldman Sachs today, slashing its price target for the company by 26% to $19.25, APT has managed to rocket out of the gates this morning.

The payment provider’s share price has climbed 11.93% in the opening hour of trade, putting on $1.70 to trade at $15.95. Current trading price is $15.83.

According to Goldman Sachs, the reduced target priced reflects lower merchant fee assumptions in the US market.

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Afterpay’s share price reflects strong performance

In an ASX announcement released shortly before open this morning, Afterpay provided investors with its key business developments.

According to the announcement, the company has continued its strong performance through the first half of FY19. Underlying sales globally for the period was over USD$2.2 billion, an increase of 240% from the corresponding period of FY18.

The company also reported strong growth within its user base, having transacted with over 23,000 merchants globally, consisting of 3.1 million active customers within the last 12 months.

According to APT, they experienced a growing average of approximately 7,500 new customer per day over Q2 FY19.

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In Australia and New Zealand, APT reported AUD$2.0 billion in underlying sales were processed through its platform in the 1H FY19, double the prior corresponding period.

In the last 12 months, approximately 2.5 million customers and over 21,500 retailers have transacted with Afterpay within Australia and New Zealand.

Despite some retailers reporting slushing sales over the holiday season, APT has managed to buck this trend with particularly strong figures, which it attributes to its larger merchant partners.

In addition, in-store sales now represent a total of 16% of total underlying sales within Australia and New Zealand.

What’s next for Afterpay?

Just as the banking inquiry is scheduled to conclude, the Senate Inquiry into Credit and Financial Services is well underway.

Despite the government and regulators snooping around, Afterpay has ensured its customers and investors it looks forward to illustrating its unique business model.

The company seems eager to show regulators the ethics of its business model. Indeed, APT has seen a decline in late fees as a proportion of total income.

During 1H FY19, late fees represented less than 20% of total income comparatively to 25% of total income in FY18.

While Afterpay insists the decline in late fee income has no impact on the business, the reduction reflects the strength in Afterpay’s business model — APT relies on fees from its merchants rather than collecting late fees from customers.

The company claims several factors that have contributed to the reduction in late fees. Namely the introduction of a cap to late fees in June 2018, and optimisation of their strategy to assign limits which promotes more responsible spending.

Customers continue to be swayed by the Afterpay model regardless of spending limits, with over 90% of monthly sales from returning customers.


Ryan Clarkson-Ledward,

For Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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