It’s pretty clear who the biggest winner of 2020 has been thus far…
The buy now, pay later phenomenon has come a long way this year. Defying plenty of odds and doubters to become a true sensation.
From their $8.90 low on 23 March, the APT share price has roared with a vengeance to $68.16. Bringing it ever closer to becoming one of Australia’s top 20 companies by valuation.
Easily the most prolific and talked about success stories of this whole pandemic.
Afterpay is now the face of Australian tech. A pioneer that is threatening to upend our market in the same way we’ve seen Facebook and Amazon upend Wall Street.
Granted, Afterpay still has a long way to go before it can compare itself to any of the FAANG stocks. With an official profit still yet to be seen.
This past financial year though, may be the year that happens. After all, we keep hearing about how their earnings have surged this year. Fuelled by the broader online shopping boom that has occurred.
Whether or not that will be enough to claw their way into the black though, is unclear. We’ll just have to wait and see what their final reporting has to say when it is released next month.
In the meantime, what we can look at is how Afterpay got to this position. Because profit or not, a stock rally like this must have a catalyst behind it. And I believe a big part of that catalyst could be the government.
New generation, new rules
It’s no secret that Afterpay’s users are typically young people.
The average age of their customer is just 33. And I’m willing to bet their younger users are more frequent users of the app.
I mean that’s not exactly some giant stretch of the imagination.
Afterpay themselves even recently funded a report into gen Z’s spending habits. A demographic who’s oldest clock in at 25.
They clearly know their audience and want to maintain a strong affinity with them.
As they should, Afterpay is perhaps the perfect answer for these young individuals. The report found that 94% of their gen Z users link directly to a bank account or debit card. Almost forgoing credit cards completely.
That’s quite the shift compared to previous generations. An insight that Afterpay naturally used to reinforce their claim of being ‘budget-focused’.
Effectively, they see buy now, pay later as a perfectly reasonable way to manage money. A tool that younger generations can use to financially empower themselves.
I’m sure some of them do in fact do this. And props to anyone who does.
But, I don’t for one second believe that every Afterpay user is a budgeting mastermind. In fact, one of the government’s more recent schemes would suggest the opposite…
As part of the recent stimulus package, the government put in place a change to superannuation. They gave anyone who has been financially impacted by COVID-19 the chance to withdraw money from their super.
In other words, people doing it tough could dip into their retirement savings. Withdrawing up to $10,000 initially, and a further $10,000 as of 1 July.
And boy, have people been quick to jump at the opportunity. Especially the younger cohort…
Young, dumb, and out of money
According to the Association of Superannuation Funds of Australia, 2.5 million Australians have taken up this super offer. Withdrawing some $16 billion in total.
And now, with the second round of $10,000 up for grabs as of Wednesday, they could withdraw more again. Which, if the recent ATO website crashes are any indicator, is exactly what they’re doing.
The key detail though, is that Aussies under the age of 35 are by far the biggest offenders. Accessing this scheme more than any other age group.
In fact, according to Industry Super Australia — a consultation firm — up to 395,000 Aussies under 35 may have drained their super accounts to $0. Sucking up every last cent they have.
Now personally, I have a mixed opinion of super.
I believe that people should have the freedom to invest their retirement however they see fit. Not be forced to pool their money in boring ETFs if they don’t want to.
It’s your money, you should be able to spend it as you wish.
However, this is an opinion coming from someone who knows and has an interest in the stock market. Most people under the age of 35 aren’t going to have the same experience or interest in markets as I do.
And for that reason, super may be an effective and easy option for them. I digress though.
Getting back to my main point, this scheme has given a lot of people a lot of quick cash. Money that is intended to help keep people’s heads above water in these tough times.
I’m sure some will be relying upon this lifeline for exactly that. But I’ve no doubt plenty of others are likely using it as an opportunity to splurge as well. And with few ways to spend that money other than online shopping, I’m sure Afterpay is loving it.
As such, I wouldn’t be surprised to see the buy now, pay later sector continue to climb. Especially if 2.5 million people may have just collected another cool $10,000.
For that reason, it may be round two of a bit of retail therapy. It’s good for the economy after all…
Editor, Money Morning
Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.