ASX 200 Corner: Why investors can't get enough of Afterpay share price bump

Summary

• Afterpay’s FY20 NTL is expected to be 0.38% of underlying sales as against 0.55% expected previously in July.
• Afterpay and Zip are eyeing to release FY20 report on 27 August 2020.
• From touching AU$8.90 low on 23 March 2020, the APT share price has skyrocketed more than 9x to AU$81.160 as on 20 August.
• Afterpay continues to be under the scanner, while social distancing norms and ongoing lockdown restrictions are setting new standards for online shopping with an increase in consumer confidence.

Payments company, Afterpay shares soars 8.3% on 20 August 2020 (1:05 PM AEST) following FY20 guidance update a day before. From its share price touching AU$8.90 low on 23 March, the APT share price has skyrocketed more than 9x to AU$81.160 as on 20 August.

Afterpay’s (ASX:APT) July trading update stated FY20 NTL (Net Transaction Loss) expectation of up to 0.55% of underlying sales. The latest surprise update of the BNPL player expects the same to be at 0.38%, on the back of higher than expected collections of instalment payments relating to the June end receivables balance.

Afterpay will release final reporting on FY20 results on Thursday, 27 August 2020. For now, what investors can look at Afterpay’s growth story and probable catalysts behind a stock rally like this.

Also read: Afterpay & ResMed Drove Ophir High Conviction Fund’s June Performance, Know How!

Two-day mega sale

The buy now pay later app is hosting a two-day shopping event starting this Thursday, August 20, at 8m for 48 hours. Australians can shop from the top retailers on sale up to 70% and can pay in four fortnightly interest-free instalments. The announcement has come as a pleasant surprise to the shopping enthusiasts as the country battles the economic effects of the health crisis.

Charting Out Afterpay’s Success Story

Nick and Anthony created Afterpay Limited as a tool to help people make most of their money and manage the spending responsibly. At the same time, investors seem to be pretty clear about making money, Afterpay is the biggest winner of 2020 so far.

Tossing all speculations and odds aside, the ‘buy now pay later’ has created sensation this year. Just over five years, a little know Australian start-up has grown into an ASX100 player. Apart from Australia, it also operates in New Zealand, the United States and the United Kingdom.

Also read: Buy Now Pay Later Game Getting Stronger in New Zealand- Afterpay Head to Head with Payright

By looking at its success story in the times where most companies are grasping to stay afloat, Afterpay is a superstar amidst the virus-induced volatility. Notably, an Australian tech start-up has turned the market upside down the same way we have seen Facebook and Amazon on Wall Street.

Though it is still a long way before we can compare it to any of the best performing Australian shares with an official visible profit, its upward trend at the ASX is something investors can’t shrug off.

The novel coronavirus (COVID-19) pandemic has stalled the brick and mortar businesses, resulting in booming trends of online shopping. At the same time, the company has been informing investors on increased earnings, mainly due to the growing purchases online.

Also read: BNPL Stocks, Capital Raise and Success Stories – Splitit, Afterpay

Emerging Trends in the BNPL Space

Out of all baffling and unexpected trends seen through the pandemic, Afterpay fintech story is continuously dominating the headlines. Post finalising AU$650 million placement in early July, Afterpay has recently completed AU$136 million Share Purchase Plan.

Its rival Zip Co Limited (ASX:Z1P) is also bringing forward a strong performance. It reported a high share price growth and record transaction volumes in the last quarter of the financial year. Zip share price touched AU$6.51, up 4.3% mid-day on 20 August 2020, generating more than 60% return over last six months.

Another player in the market, Payright raised $12 million in an oversubscribed round at the start of this month. The start-up also offers buy-now-pay-later solutions for big-ticket items. Payright co-founder Piers Redward said COVID-19 had given a right push for the business.

Experts believe that the social distancing norms and ongoing lockdown restrictions have set new standards for online shopping with an increase in consumer confidence.

Related Read: The record high levels for BNPL Stock Afterpay: The Market Darling Amid crisis!

What is the driving force for BNPL Space?

As many countries as battling with the shrinking economy, the governments are trying to inject money in the marketplace. Experts wonder if this could be an add on driving force behind the BNPL products picking up more users. There are varied opinions on the same as some would say consumer demography, paradigm shift in consumption patterns and consumer sentiments also play a vital role.

Afterpay’s users are typically young people with an average age of their customers noted at 33. Recently it funded a report to understand gen Z’s spending habits. The report said that 94% of their users directly link a bank account or debit card for payment method. It states that the millennials manage and spend their money differently from their parents; their priorities are primarily driven by the new financial burdens they face. Baby boomers lived through an era of free education and affordable housing; millennials are not as lucky.

With 12% of Australia’s young people currently underemployed, up from 3% forty years ago, many millennials are also having difficulty finding enough work to pay the bills.

Survey shows that millennials are generally pessimistic about businesses and the economy. Many distrust banks and are unlikely to rely on them despite their financial challenges. Put simply, these BNPL platforms recognise their audience and have tapped correctly on the market potential, maintaining a strong rapport with them.

Also read: BNPL Bubble: How to work around stop loss + Sezzle - Unicorn on the Move