Looking for the Silver Lining in the Bouncy Covid-19 Ride: Afterpay Under Action

  • Mar 24, 2020 AEDT
  • Team Kalkine
Looking for the Silver Lining in the Bouncy Covid-19 Ride: Afterpay Under Action

In the span of less than three months, silence seems to have travelled the oceans and crossed the borders as it now lay its foot stretched across the continents. Quarantined, while we wait in the confinement of the four walls, we realise that the chirping of the birds has become more prominent as the blaring vehicles and the human commotion acknowledged a sudden halt. Even if the governments were busy ignoring, it looks like the grants of the environmentalists towards nature is finally heard. 

The ecologist’s euphoria, even in such grim situation highlights the ray of hope that bolster our disheartening aspirations and support our dwindling beliefs. However, a mere look at the medical condition and the moods takes a sour turn. As per the WHO situation’s report on 23 March 2020, the total number of coronavirus cases reached to 333,930 as the death toll increased to 14,510. A single day addition of 40,788 cases and 1727 deaths is sufficient to uproot our optimism. 

Similar to the health calamity, Covid-19 appears to be causing a wreck in the stock market as well. The stock markets all around the world are experiencing a series of downfalls as the uncertainty takes a gigantic form. While Dow Jones Industrial Average tumbled by over 34%, S&P ASX 200 fell by around 33% between 20 February to 20 March 2020. It is to be noted that this fall has been the steepest and fastest ever recorded and thus unprecedented. The travel bans, disruption in the supply chain and the loss of the demand have altogether sent many stocks spiralling down the trajectory. 

 

Source:ASX

Source:ASX

 

The roller-coaster ride experienced by the stocks is evident as the risk-averse investors take their cue to leave the world of shares and stocks. As the countries after countries go under lockdown, the ambitious plans are overtaken by the conservative thoughts. In the current scenario, like you are not ready to jeopardise your health by going out, the investors also seem to avoid peril by avoiding the risky investments altogether.

As the production stands still, the buyer’s conservatism match with that of the investors. Baffled in the maze of uncertainty, the investors tend to disown even the once most sought-after stocks. Stifled by the long-held conviction of conservatism in the volatile scenario, the investors now appear to show wavering interest in the fintech stocks that recently were enjoying popularity in the market. 

Afterpay Not Immune to the Market Volatility

Afterpay Limited (ASX: APT), one of the prominent fintech companies in Australia, along with the rest of the world, bore the inflictions brought by Covide-19. In the period between 20 February 2020 to 20 March 2020, Afterpay stocks fell from $39.260 to $12.440 marking a steep fall of 68.31%. The challenge concerning the stock price fall resonates with that faced by the rest of the world, which seems to sprout new woes and worries. 

 

Source: ASX

Source: ASX

 

Other fintech players and competitors to Afterpay are also witnessing similar plaguing situation as the share price dwindled. In the same period between 20 February to 20 March 2020, while ZIP Co Limited (ASX: Z1P)stocks fell by 66.13%, Openpay Group Limited (ASX: OPY) share price declined by 65.04%. 

The comparable downfall in the same group of industries is the indication of faltering trust of the investors in the present scenario. 

Business Model Positioned Against Market Instability

As the market instability rocks the foundation of many companies, the world is sceptically observing their long-term sustained performance. At such shaky circumstances, the strong and robust roots assume grave importance for providing support to the business and for carrying out their future operations.  

In the current world encompassed by the ongoing health-threats, the fintech companies offering credits are further exposed to additional financial risks. Considering the amount of the risk, the operating model and product design of Afterpay incorporates built-in risk management that is characterised by real-time approval of each individual transactions and dynamic transaction value limits by customers.

Inaccessibility of the Afterpay services by the customers with a single overdue payment adds another feather to the risk-management and stability of the business. The short duration of the receivables book and the dynamic nature of Afterpay’s system together assist the company in managing the losses in real-time through the early identification of the leading indicators followed by risk parameters identification. In Australia the fintech’s customers are more concentrated in the middle and high household income brackets.

A glimpse at Afterpay’s Financial Position 

The intrinsic values are often the mirror to understand the future movement of the stocks. Afterpay acknowledged a positive trend with respect to the number of its active customers and merchants. The half-yearly results ending 31 December 2019 highlighted that the number of active customers and active merchants globally grew by 134% and 86% in H1FY20 compared to H1FY19

While the underlying global sales of the company increased by 109%, the US underlying sales were more than five times compared to the previous reporting period. 

As highlighted on 13 March 2020. The company enjoys over $672 million liquidity position and over $402 million cash on its balance sheet 

With over $1.09 billion of warehouse facilities and 33.3% of the warehouse facilities drawn, the company’s weighted average life of debt facilities is 2.1 years.

While the half-yearly results and the liquidity position provides a healthy financial situation, the operations and profitability following the outbreak yet come under the radar. Following the end of the current March quarter, the company plans on releasing the business operating update which would provide a more transparent picture of the operations

A million-dollar Question

“Will it be a value investment?”, the question riddles the minds of every investor who plans on investing amidst the downmarket situation. The uncertainty and the market corrections raise both hope and dilemma amongst the investors. While the bear market offers a rising desire to capitalise on the undervalued investments, the market corrections also send fear amidst the investors. Poised with the profitability objectives while some investors attempt to make the best use of the situation presenting them their favourite stocks at a considerable low, many dispense any thought of pouring one’s money in any kind stock market endeavours. The future of the Afterpay shares and associated profitability would prominently depend upon the outbreak severity and control in the next few months. While the past fundamentals show healthy growth for the company, the future technicals would largely depend upon the medical emergency conditions. 

On 24 March 2020, APT shares were up handsomely by about 25% and trading at $11.2.


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