Australian start-up and payments innovator Afterpay Touch Group Ltd [ASX:APT] shares are on the move this morning, tacking on another 4%, to trade at $24.43 per share.
It’s been a bumper first quarter in 2019, with Afterpay’s share price more than doubling since January. The fintech start-up made waves when it first launched in June 2017 and has seen its Price share price grow by around 320% over the past 12 months.
Afterpay’s share price to continue trend
As Afterpay continues to expand its business to more retailers, luring in more and more customers both here and abroad, any doubts its innovative online payments system is just a fad has all but faded.
The momentum in the share price has been spurred on by an uplift in investor sentiment, as more and more retailers rush to Afterpay in order to attract millennial buyers.
Afterpay’s success is largely derived from co-founder Nicholas Molar’s philosophy that millennials are more willing to spend if payment can be deferred into four fortnightly payments, but still receive the product immediately.
And it seems many brokers share his philosophy.
After a strong start to business in the US market, broker Goldman Sachs has given a particularly bullish appraisal of Afterpay, after releasing a new note this morning.
According to a note out of the investment bank, it has retained its buy rating and lifted the price target on its shares by 29% to $27.00.
Goldman increased its price target on the company’s shares after revising its valuation approach and upgrading its estimates following a review of the latest indicators in the US market.
The note reveals that early signs of success in the US remain strong. This includes a record month of US app downloads, growing website visit numbers, and an increase in US retailers on its platform.
Goldman Sachs estimates that if the company can achieve a 25% penetration rate of the millennial user cohort in the US and UK, APT could generate a per share value of around $35.30 per share by FY21.
Goldman has largely based its valuation on what it believes is a strong correlation between share price and additional user numbers.
Goldman also upgraded its customer number estimates significantly. It now expects 1.85 million customers in the US at the end of FY 2019, which was previously forecast at 1.4 million. This figure is then expected to blow out to 6.6 million US customers by FY21.
What’s next for Afterpay?
Afterpay posted its half-year result in February. The results proved the company could scale its technology successfully and transition into international markets successfully.
Its active users have increased by 118% to 3.1 million over the same corresponding period and active merchants grew by 101% to 23,200.
Net income grew alongside customers and merchants, rocketing up 124% to $107.1 million in comparison with the previous corresponding period, while gross losses improved to just 1.1%.
It looks likely Goldman Sachs’ valuation will be on the money if APT’s current trend continues, the US offers an exponentially larger online retail market compared to Australia’s — $590 billion larger.
Afterpay expects to launch for the first time in the UK within H2 FY19, already receiving commitments from retail giant Urban Outfitters to partner for the launch.
The UK online retail market is estimated to be worth $130 billion.
For Money Morning
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