Afterpay Share Price in the Red with Equity Incentive Plan

Nothing spectacular has happened to the Afterpay Touch Group Ltd [ASX:APT] share price in this week of trading, with shares falling in the red since last Friday.

At time of writing, Afterpay share price is trading at $24.17, a 2.54% drop since yesterday, likely fuelled by the issuing of new shares as part of their 2018 Equity Incentive Plan for their US branch, Afterpay US Inc. Afterpay is refusing to disclose the share structure of their US subsidiary, which is causing unrest among investors.

The Equity Incentive Plan at a glance

As per the ASX announcement, Afterpay describes the incentive plan as:

An essential part of APT’s strategy to attract world class talent to our US operation in a competitive labour market.’

The plan involves Afterpay US Inc offering options for eligible participants a right to acquire shares — or in other words, ‘US Options’, of which exercised shares in the US subsidiary will be allocated.

In addition, ‘in specified circumstances, exercised shared may be exchanged for APT shares.’

But Afterpay are not disclosing the total numbers of shares on issue, nor are they revealing how many of the US subsidiary’s shares are held by Afterpay’s Australian shareholders.

The update says such a value is ‘currently unascertainable’, but that the maximum number of APT shares that can be issued for exercised shares is 21,777,661. This equates to 10% of the number of APT shares on issue at the date this figure was calculated.

The deal seems to be structured in a way where more shares can be awarded to US investors if the US branch somehow outperforms UK and Aussie branches.

But Afterpay believe this will be unlikely, saying:

For this to happen it would necessarily mean that the value of APT (excluding the US business) is negligible or very low in comparison to the assessed value of Afterpay US Inc.’

As of the time of the Equity Incentive Plan update, just over 10 million US options are currently on issue.

What this means for Afterpay

According to the Australian Financial Review:

Those options, which have been issued at US19¢ (about 25¢) effectively value the US business at a maximum $40 million, based on US filings that show the share count cannot exceed 150 million.

That is significantly lower than the multi-billion-dollar valuation assigned to the US business by Australian share-market investors, and illustrates the beneficial terms extended to its US staff, consultants and directors.’

Issuing share-based payments is standard for many emerging tech businesses in the US and is often one of the larger costs. It is simply the means of a successful company to incentivise top level staff.

And this is just one of many expanded ventures for Afterpay.

For instance, Afterpay has partnered with LayAway Travel — an established travel business with its own pay-by-instalment method — to create the ‘PLAY’ branch.

According to the Afterpay’s website, PLAY ‘helps travellers to book and pay for an amazing travel experience over a series of interest-free instalments prior to their departure date.’

Afterpay won’t be going anywhere for quite some time, and have ample opportunity to increase in value. Though it may still be best to just keep an eye on this stock to see how this Equity Incentive Plan pays off.


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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