‘Buy now, pay later’ industry leader Afterpay Touch Group Ltd [ASX:APT] has rallied over 6% today, coming off news of the company — who already operates in the US, Australia and New Zealand — to launch in the UK.
Afterpay shares have been in a relatively stable uptrend since the beginning of 2019, with their one-year return currently sitting at 356.16%.
This most recent avenue of expansion seems to be a signal to investors that there is still a lot more potential for future growth for Afterpay. But is that the case?
A clear path into the UK market buoys Afterpay share price
According to the company’s executive director, David Hancock, Afterpay plans to use existing brand ClearPay to get into the UK market. ClearPay was bought by Afterpay back in August 2018 through a $110 million equity raising.
Hancock says the ClearPay logo and tech will be used, as ‘the quickest way for us to get into the market is actually use the ClearPay name’.
While international expansion is no doubt full of lucrative potential, Hancock sees other advantages in entering the UK market, such as getting more specialised talent onto their team.
‘Because you’re close to eastern Europe, there’s a whole lot of security analysts and a number of other things that are essential over there,’ he said.
In addition, setting up shop in the UK may offset some of the challenges Afterpay’s US market is currently dealing with. While growth is evident, their focus on ‘getting large-enterprise merchants on board’ means ‘they come at a slightly lower margin,’ says Hancock.
And while more customers from these large enterprises ultimately means more money, the benefits may not transfer to investors. Last week, Afterpay revealed that they’ve issued over 100 million shares in their US subsidiary, with 10% of that capital being allocated to staff options.
A ‘buy now, pay later’ venture?
One minor sticking point about the UK endeavour is that the consumer debt will need to be funded initially by money raised in Australia.
‘What you need to do is you need to have experience and what I mean by experience is you need to have transactions because banks … want to actually see transactions’ says Hancock.
‘So because we haven’t actually started transacting in the UK, it’s not part of our capital management plan to have any funding in the UK at the moment. We will start to develop that once we actually start to go live.’
While it’s hard to question the potential of a ‘buy now, pay later’ method to take off in the UK, the fact that Afterpay has a launch partner — fashion retailer Urban Outfitters — for this expansion makes it unclear whether the Afterpay name really can solidify in Britain.
And with payments to merchants, suppliers and employees higher than receipts from customers, it may be that Afterpay is in fact buying up on size without considering the total costs.
Perhaps it is best to wait until the excitement around Afterpay settles before jumping into any investment action.
For Money Morning
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