Emerging Opportunities For BNPL Player Afterpay; Win-win situation from Tencent’s Investment

  • May 04, 2020 AEST
  • Team Kalkine
Emerging Opportunities For BNPL Player Afterpay; Win-win situation from Tencent’s Investment

Melbourne-based Afterpay Touch Group Limited (ASX:APT), an early adopter of buy-now-pay-later business model offering innovative payments solutions to consumers, has onboarded Tencent Holdings Limited as a new substantial shareholder in Afterpay upon submission of the notice of initial substantial holder to the Australian Securities Exchange on 1 May 2020, as reported.  

The APT stock closed the trading on 4 May 2020 at $36.100, climbing up 23.8%.

To make the process of purchasing a memorable and convenient experience for a global customer base in Australia, New Zealand, and the United States, Afterpay provides two vital modes of payment including, Pay Later and Pay Now.

Pay Later (Afterpay) has been in a high-growth stage as it offers the option of buy now, pay later service through a proprietary platform that facilitates commerce between retail merchants and their customers. The service eliminates the need for end-users to sign a traditional loan or pay any immediate fee/interest to Afterpay. Pay Now (Touch) is a combination of E-services, Mobility and Health services that the consumers use daily via the proprietary Touch System Platform, which enables consumers to quickly purchase products in-store, via safe self-service methods, on mobile applications, web sites, interactive voice recognition (IVR) systems and a range of other means.

Tencent offers Internet value-added services like online advertising, FinTech, digital entertainment, as well as cloud services. The Company has communications platforms comprising WeChat, QQ and Weixin (a prominent mobile payments platform which records ~1 billion commercial transactions on an average per day in China). Tencent is a Hong Kong Stock Exchange-listed company.

Co-founders of Afterpay, Anthony Eisen and Nick Molnar, have both stated that it is a privilege and highly rewarding for the Company to have such a strategic investor of this calibre and is a testimony to Afterpay’s team and the strength of its differentiated business model. Afterpay expects that Tencent’s investment would provide the Company with an opportunity to learn from one of the world’s most successful digital platform businesses as Tencent’s vast experience and network is highly valuable. The investment would also pave the way for future collaborations over geographical expansion, technology, and future payment options on the company’s platform.

Equally thrilled by their new investment decision, Tencent’s Chief Strategy Officer, James Mitchell highlighted that they are always looking to actively invest in pioneering FinTech companies other than those based in China, that offer unique insights into the emerging FinTech landscape. In line with that criteria, Afterpay’s approach and business model stood out to Tencent while Afterpay’s services align well with the latest consumer trends transpiring worldwide.

Some of the essential features of Afterpay’s Business Model are low-value transactions (average order value of $150), purchases paid off in 4 instalments (low average instalment payment of $37.50), assessment of each transaction in real-time, immediate suspension of customers from making further purchases upon delay in a single payment, no allowance for extension of payment terms, automated payments and collection process amongst others.

This business partnership is expected to be a long-term affair for both companies.

The collaboration between Tencent and Afterpay has come at a period when a number of challenges have been presented globally due to the social and economic impacts of the COVID-19 virus. Notwithstanding the COVID-19 situation, Afterpay had pro-actively executed phase one of its Response Plan in mid-April 2020 to effectively handle the business through this challenging phase. It is fair to say that the nature of Afterpay’s service, backed by its robust business model and strong capital position, has boosted its ability to sail through the current environment.

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As per the Company’s business update for the three months ended 31 March 2020 (Q3 FY20), Afterpay has delivered strong performance across all its segments with underlying sales reaching $ 7.3 billion YTD, growing by a massive 105% relative to the prior corresponding period (pcp) in FY19.

Overseas in the United States, Afterpay’s performance has remained stable for Q3FY20, with in-line underlying sales compared with Q2 FY20 in spite of the seasonally quieter retail market in that region. In fact, the Company’s income margins for March 2020 and FY20 YTD have been higher than the whole first half of FY20. On top of that, Afterpay currently boasts of a robust balance sheet and liquidity position with $ 541.1 million of cash and $ 719.2 million of total liquidity as of 31 March 2020.

In addition to its otherwise flourishing business, the Company’s impressive figures for Q3 FY20 can be attributed to the fact that home-stricken consumers across the globe (Americans, British, Australians and New Zealanders) have all taken to their cell phones and laptops to shop online and stock up on their essential products with the initial increase in online buying skewed towards essential, personal care and homeware items. The segments such as entertainment, travel, and ticketing categories remain substantially depressed and are also the most impacted sectors globally.

Thus, companies, mainly financial services firms, with an established online presence, customer base or online business offering, have been able to benefit from this sudden surge in online purchases by consumers in Australia and New Zealand. Thus, Afterpay’s active customers grew strongly to 8.4 million worldwide by Q3 FY20 end, reflecting a 122% growth compared to the pcp.

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In the March Quarter 2020, Afterpay had also signed referral agreements with Wix across all four of Afterpay’s active markets being Australia, New Zealand, United States and the United Kingdom. Wix merchants, through the agreements, would be able to offer Afterpay to shoppers which would roll out in the coming months.  

Presently, as the world faces another challenge, that is transitioning from social distancing to reopening the economies, Afterpay has also highlighted that it is difficult to identify any sustained trends, in any of its operating regions due to COVID-19.


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