Zip Co and Afterpay – What can re-trigger growth

Buy Now Pay Later Service
Buy Now Pay Later

Retail finance offers credit facilities or stage payments to creditworthy consumers. In recent years, the concept of buy now pay later (BNPL) witnessed a tremendous growth in Australia. BNPL enables consumers to purchase the services or goods immediately and make payments for the bought products over the course of time. This service is mostly popular amongst the young generation, since the youth finds it as an alternative option to credit cards.

As per the survey on consumer research, there are more than two in five users who use buy now pay later services, with an annual income of less than $40,000. In this group, 40% of the consumers were either students or engaged with the part-time work. With this service, consumers can buy more expensive products that were not easy to afford in a single payment.

As per the study of ASIC, the 6 buy now pay later stocks have generated a good revenue of $78 million in the quarter ended 30 June 2018 as compared to the quarter ended 30 June 2016 ($32 million). The consumers have shown great interest in this service in the last few years period.

According to ASIC report, the number of buy now pay later arrangement users has increased to 2 million consumers in 2017-2018 financial year-

Number of buy now pay later consumers (Source: ASIC Report)

In this article, we are discussing the two stocks which provide buy now pay later services.

Let’s zoom the lens on the growth of Zip Co and Afterpay:

Zip Co Limited (ASX: Z1P)

An ASX listed company Zip Co Limited (ASX: Z1P) formerly known as ZipMoney Limited is a leading player in the digital retail finance and payments industry, headquartered in Sydney. Z1P provides point-of-sale credit and digital payment services to health care, retail, travel and education industries. It is an Australian public limited financial technology company, which operates under the Pocketbook brands, Zip Money and Zip Pay. In Australia, Z1P has nearly 10,000 retail partners and 1,200,000 customers.

According to a recent ASX announcement on 7 November 2019 the company unveiled that it has issued 20,001,444 new fully paid ordinary shares.

Strategic agreement with Amazon Australia

In another ASX update on the same day, the company announced that Zip has entered a strategic agreement with Amazon. Z1P would issue to an affiliate of Amazon with warrants to buy up to 14,615,000 ordinary securities, in connection with the strategic deal. With this agreement, Zip becomes Amazon’s first Australian instalment payment option, and it is available as a payment option for customers shopping on Amazon.com.au.

Commenting on the deal, Zip’s CEO and Managing Director Larry Diamond, stated that consumers who are seeking to own the way they make payments, would have a wonderful experience owing to the agreement.

Annual General Meeting

In October 2019, the company notified that it would conduct an annual general meeting on Friday 29 November 2019 at Sydney, Australia. The agenda of this meeting will be the discussion of financial statements and reports along with the following resolutions-

  • Adoption of Remuneration Report
  • Re-election of Philip Crutchfield as Director
  • Approval of Issue of STIP Shares to Larry Diamond, Director of the Company
  • Approval of Issue of STIP Shares to Peter Gray, Director of the Company
  • Approval to Increase the Maximum Aggregate Amount of Non-Executive Directors’ Fees

Q1 FY20 Highlights (ended 30 September 2019)

  • The company officially joined the S&P/ASX 300 in the September index rebalance.
  • Zip signed an agreement to acquire PartPay Limited, which is a global instalment technology platform and provides exposure to four key geographies – the United Kingdom, United States, New Zealand and South Africa.
  • The company generated quarterly revenue of approximately $31.0 million, which is 15% up as compared to the fourth quarter of FY2019.
  • Total Receivables of Z1P increased to nearly $783.6 million, up 15% compared to Q4 FY2019.
  • Zip’s customer number increase to 1.4 million with the addition of 147k customers in Q1 FY2020.
  • The company recorded a quarterly transaction volume of approximately $402.1 million, which is 111% up year on year.
  • Zip app is under top 10 rank in Apple and Google stores. It’s on 9th rank in Apple and on 4th rank on Google Stores.
  • The company increased 15% of investment in QuadPay, a US BNPL provider.
  • After the acquisition of Spotcap Australia and New Zealand, the company has now been accelerating the launch of the Zip Biz BNPL product.
  • Z1P has continued to deliver speedy growth in its underlying operations-

Key operational matrix (Source: Company’s Report)

Stock Performance-

The company’s stock was trading at $3.880, down 3.483% on 08 November 2019 (AEST 01:09 PM) with a daily volume of nearly 5.31 million and a market capitalisation of approximately $1.42 billion. The stock has a 52 weeks high price of $5.860 and a 52 weeks low price of $0.915. The company has delivered a return of 265.45% on a year to date basis and a return of 14.86% in the last six months.

?Afterpay Touch Group Limited (ASX: APT)

A Melbourne headquartered company, ?Afterpay Touch Group Limited (ASX: APT) is a financial technology entity and is currently operating in the United Kingdom, Australia, New Zealand and the United States. Afterpay Touch Group was formed after the merger of Afterpay and Touchcorp in June 2017, and after this merger, APT emerged as a leader in the buy now pay later (BNPL) industry. The main agenda of the company is to make purchasing feel great for a global customer base.

Annual General Meeting (AGM)

The company announced that an AGM would be held in Melbourne on Wednesday 13 November 2019 at 10.30 am. The key business highlights of the meeting will be the discussion of financial and related reports including the following resolutions-

  • Adoption of remuneration report (non-binding resolution)
  • Increase in maximum aggregate remuneration for non-executive directors
  • Re-election of Mr Clifford Rosenberg as director
  • Ratification of issue of shares pursuant to placement
  • Approval of the Afterpay equity incentive plan
  • Approval of LTI grant – Chief Executive Officer and Managing Director
  • Approval of LTI grant – Global Chief Revenue Officer and Executive Director
  • Approval of change of the company’s name to Afterpay Limited
Key highlights FY2019 (ended 30 June 2019)
  • APT signed an agreement with VISA; this agreement will support the development of innovative new solutions and business growth in the United States market.
  • There are total of 4.6 million active customers of the company at the end of FY2019, up 130% as compared to the last financial year.
  • The company’s global sale in FY2019 has increased to $5.2 billion, which is up 140% compared to the previous year’s sale.
  • Total Afterpay pro forma income increased by 115%, to $251.6 million.
  • The Net Transaction Margin (NTM) for FY2019 is $126.1 million, up 126%.

Outlook-

The company will continue investing in innovation in FY2020, particularly in the global platform and data capability, which will add value to the merchants and customers. Various innovations are being conducted and are/or in the roll-out phase, which includes Variable Payment Upfront and Merchant Cross-Border Trade.

Source: Company’s Report

Stock Performance

The company’s stock was trading at $26.530, up 1.105% on 08 November 2019 (AEST 01:11 PM) with a daily volume of nearly 1.01 million and a market capitalisation of ~ $6.63 billion. The stock has a 52 weeks high price of $37.410 and a 52 weeks low price of $10.360. The company has delivered a good return of 118.67% on a year to date basis.


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