Australia’s largest buy now, pay later provider agreed to sell 5% to the Hong Kong-listed video games company Tencent — boosting Afterpay Ltd’s [ASX:APT] share price up 22.02% to $35.58, at the time of writing
Tencent, a massive Chinese conglomerate, has a current market cap of US$498 billion. Tencent Chief Strategy Officer James Mitchell noted at the announcement of the investment:
‘Afterpay’s approach stands out to us not just for its attractive business model characteristics, but also because its service aligns so well with consumer trends.’
Is this enough for Afterpay…
In a recent article we discussed the downgrade of Afterpay by a collection of brokers, big brokers to be exact. Citi, Goldman Sachs, and UBS — who all believed at the time that the price did not reflect the risks posed by the COVID-19 pandemic.
While the investment from a major global player in the fintech space is not to be sneezed at, the issue remains of COVID-19 and the economic impact it is having around the world.
Comparisons are now being made between the 1920 depression and Spanish flu with what we are seeing today with COVID-19 in 2020. Just recently, Goldman Sachs predicted COVID-19 would cut US GDP by 34% in the second quarter of 2020 and by 6.2% for all of 2020, according to CNBC.
How this will reverberate around the rest of the world is yet to be seen.
False dawn for Afterpay share price?
It’s certainly a big moment for Afterpay, and the confidence that Tencent has shown is flowing through to the current Afterpay share price.
But I think certain macroeconomic factors may be hard to ignore…
The downgrades by the brokers still stand, people are still off work, and unemployment is growing. This will have people cutting down on spending and looking to save more.
At this stage, the outlook from our last look at the Afterpay share price still stands.
Trading is on increasingly lower daily volume, indicating the run-up could be losing its strength. The Afterpay share price is also around a historical resistance level of $28.56.
Coupling the technical analysis and the broker downgrades, should Afterpay fall, historical support levels of around $23, $20, and $16.29 may come into play.
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For Money Morning