APT Surges 5x from the bottom, what changed?

APT Surges 5x from the bottom, what changed?

Summary

  • The APT share price surged by 5 times at $49.52 on 2 June, since hitting a low of $8.9 on 23 March, is now nearing its 52-week high of $50.010 and expected to rise further due to its addition to MSCI Australia Index.
  • Afterpay posted strong sales at $2.6 billion in Q3FY20 driven by growth in the US (up 263%) and ANZ (up 40%) boosted by its utilisation among millennial consumers.
  • Changing spending patterns and withdrawal of government stimulus can act as critical risks to the BNPL sector.
  • APT’s US customer base rose to 9 million till 20 May, and Elana Robin appointed as the new chair of APT Board.  

In the current time of digital disruption and coronavirus, Australia's preferred approach towards payment method for the bought goods is shifting, as the craving to access fast and secure credit is rising up, which is evident from binge buying during the lockdown. The introduction of online business models like Buy now pay later platforms have disrupted the banking and credit world.

BNPL sector allow the customers to avoid paying upfront and do not charge interest on purchases. Its services divide the cost across fortnightly deductions and charges late fees if a customer fails to make the payment on time. BNPL sector has received a significant boost at the time of lockdown due to the surge in online buying particularly amongst the younger population as they tend to adopt newer technologies faster than the older generation who like to continue with the old systems.

One such BNPL stock that has been breaking records and surging up is Afterpay.

Afterpay Touch Group Limited (ASX:APT) has jacked up during the coronavirus pandemic. Its share price, surged up 5 times closing the day at $49.52, hovering around its 52-week high of $50.010 on 2 June from a low of $8.9 recorded on 23 March. APT bottomed out in March due to implementation of social distancing measures amid coronavirus led shutting down of businesses and created panic amongst investors which rattled the financial market.

APT's share price reached an all-time high at $49.11 on 26 May after the BNPL firm announced on 25 May about Elana Rubin’s formal appointment as chair of the Group. The stock has been zooming up since then and has become even more attractive to investors in the past week after the news broke out of it being added to MSCI Australia Index on 29 May.

 APT Chart on 2 June 2020, Source: Thomson Reuters

Performance indicators-

APT posted strong performance across its business with robust results in 3-month period ending 31 March. Some of the highlights for Q3FY20 are-

  • Underlying sales doubled rallying to $2.6 billion, up by 97% compared to Q3FY19
  • Growth of 263% in the US active customers and 40% growth in ANZ customers with a total of 8.4 million customers at the end of Q3FY20
  • During the period, active merchants grew by 78% to 48,400 on the previous comparable period
  • Repeat customers weighed 90% of the total Global Merchandise Value (GMV) with underlying sales in ANZ representing nearly 57% of the total GMV, the US contributing 38% and the UK adding 5%

Source: APT Business Update and Response to COVID-19, ASX

ALSO READ: Afterpay Cracked $50 a share for the first time in early trading, Stock Zoom up by 56% in May

Afterpay entered into a partnership with Tencent Holdings Limited and eBay  with expansion plans on its agenda. The Company has lined up its business model with low-risk profile shoppers and sensible expenditure during coronavirus.

Growing customers and merchants

APT has been gaining traction amongst e-commerce payment companies in the US market after initiating its services there just 2 years ago. More than 15,000 brands and retailers are offering APT to their customers or are in the process of the same, which now includes of American Eagle, Birkenstock, Furla, Herschel, Lancer Skincare, etc.

The Group has nearly 9 million US customers who have entered the platform with above 1 million new customers utilising the platform during COVID-19 time in the last 10 weeks to 20 May 2020. APT's app and site visits crossed 15 million during April 2020, while its US Shop Directory added nearly 10 million lead referrals to its retail partners.

ALSO READ: BNPL Stocks Benefitting from the Boost in Contactless Payments- APT, SPT, SZL

Further, Afterpay also permits merchants to give instant and easy access to products to customers and pay in 4 straightforward instalments in a short time. The service is free for customers who pay on time without incurring any interest or fees. APT has helped merchants in the US region gaining $2.4 billion in YTD period, all through Q3 FY20, reflecting a 354% rise compared to the same period in FY19.

Nick Molnar, co-founder and US CEO of Afterpay, stated that there had been a surge in demand of customers who want to pay for things they need using their own money instead of costly loans with interest, fees or debt at a time where people are relying on e-commerce for shopping.

APT rallying due to value migration

Value migration refers to a movement of economic and shareholder value away from obsolete business versions to new signifying shifting customer needs that will be fulfilled through new competitive offerings. It happens when there is a divide between customer priorities and current business strategies.

Some of the key sources of value migration stems from technological changes, change in consumption habits and lifestyle habits of consumers, infrastructure development and reforms undertaken by policymakers in various fields.

Some of the common traits of value migration winners are:

  • Leaders in the respective space who gain market share from incumbents
  • Innovation as a critical organisation focus area
  • Healthy cash flow dynamics
  • Nimble footedness in adapting to change if they are not leading the change 

These are some of the key traits that APT reflects as well. However, the conglomerate possesses the risk of slow sales growth. Alterations in spending patterns and withdrawal of stimulus can affect the buying behaviour of consumers which can further affect sales of APT.

Another key risk is regulation by the Australian Securities and Investment Commission (ASIC) on not verifying credit history and income before extending credit. At the same time, RBA is worried that the costs that merchants pay is also being retrieved from the charges handed over to customers by keeping prices of goods high.

APT Board Changes 

APT announced Elana Robin as chair of its Board transitioning from interim chair role on 25 May. She will stay as a Non-Executive Director on the Boards of ASX listed companies namely Telstra and Slater and Gordon.

APT also selected Sharon Rothstein as a Non-Executive Director (independent) who became the member of the Board from 1 June 2020. She sits on the Board of NYSE listed entity, Yelp Inc. and is chosen as a Non-Executive Director (independent), IHG (InterContinental Hotels Group) with effect from 1 June 2020. Further, Sharon works as an Operating Partner of growth equity firm, Stripes Group.

Meanwhile, Cliff Rosenberg quit from the position of Non-Executive Director of the Company, following his retirement, effective 24 May.

 


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