ASX All Technology Index Continues to Slump, Afterpay Under Pressure: Is the Bottom Far Deeper?

Summary

  • The market continues to be highly volatile, with majority indices experiencing the pressure from NASDAQ’s fluctuating performance over the past two weeks.
  • ASX technology sector has been amongst the worst-hit sectors in this time frame.
  • Leading BNPL company Afterpay, which noted a surge of 156% in its share price in the last six months, has tumbled by over 17% in the past ten days.
  • The Company delivered a strong performance in FY2021 and has plans to accelerate its investment for growth in FY2021.
  • Afterpay’s outlook exudes optimism though the ongoing market uncertainty might play a significant role.

The Australian Stock Exchange continues to be highly volatile these days. ASX, which closed on a positive note yesterday, dropped 0.86% today, settling at 5,859.4. Most sectors closed in the red zone, with sectors such as Energy, Financials, Information Technology, Materials, Metals and Mining, Resources, Utilities, banks, and All Technology dropping more than 1% from their respective previous close.

DO READ: What made the ASX Tech Index go green on 10 September 2020?

The technology sector plunged last week due to a massive fall on Wall Street. A similar performance was seen on the ASX on 9 September 2020, affected by a drop in US indices a day earlier. On 10 September 2020, US indices again settled in the red zone, majorly influenced by the decline in the shares of Apple Inc by 3.26% to US$113.49.

Performance of Major Indices on NASDAQ:

  • NASDAQ Composite tumbled by 1.99% and stood at 10,919.59.
  • A decline of 1.45% was seen in Dow Industrials.
  • NASDAQ-100 index was also down by 2.12% by the market close on 10 September 2020.

The impact was felt in Australia too with the S&P/ASX 200 Information Technology and S&P/ASX All Technology Index falling by nearly 2% and 1.5%, respectively. The tech indices have witnessed a significant decline in the last ten days.

In this article, we would look at one such tech player, Afterpay Limited (ASX:APT), that has experienced a fall in its share price during September 2020.

Afterpay’s Share Performance:

In the last six months, the shares of Afterpay have delivered a return of ~156%, with ~39% return in the previous three months. However, since the beginning of the month, the shares followed a downward trend. Market cooling, coupled with the impact of Wall Street’s performance, led to a drop of 17.29% in its share price. On 11 September 2020, APT share price ended at A$73.870, down 2.327% from the previous close.

DID YOU KNOW: 3 ASX Growth Stocks That Corrected Last Week - Afterpay, NEXTDC and Medibank

Operational Highlights:

ASX 200 listed BNPL company Afterpay released its FY2020 result on 27 August 2020 reporting growth in momentum in all markets with global underlying sales surging 112% in FY2020 to A$11.1 billion.

The Company progressed with its rapid penetration in the US and UK markets, helping APT to change the geographic profile of its business. Combined underlying sales contribution from these international markets went up from 18% in FY2019 to 41% in FY2020. The number of active customers more than doubled in FY2020 to 9.9 million, with the US and UK exceeding substantial milestones and achieving 5.6 million and 1 million, respectively. There were around 7.3k new customers, on an average, which were added to Afterpay platform each day during FY2020. In Q4 FY2020, 20.5k new customers per day were added.

APT has noted that the customers are transacting more often when they remain on the platform for a longer period. Around 90% of the underlying monthly sales were generated from the repeat customers. The international market also demonstrated a similar customer frequency trajectory to the blueprint formed by the more mature ANZ business.

During the fourth quarter, APT generated an average of 14.5 million customer referrals to its retail partners every month. The continuous substantial growth in customers and improving customer frequency dynamics across all regions created a competitive network advantage which benefitted APT’s retail partners. It also played a crucial role in improving the financial performance of the Company.

DO READ:

A Peek into FY2020 Result:

  • Afterpay underlying sales grew by 112% to A$11.1 billion.
  • Afterpay active customers improved by 116% to 9.9 million.
  • Afterpay active merchants increased by 72% to 55.4k.
  • Group Total Income rose 97% to A$519.2 million, while APT’s total income was up 103% to A$502.7 million.
  • Afterpay Gross Loss, as a % of underlying sales, improved by 24%. It declined from 1.1% in FY2019 to 0.9% in FY2020.

Image Source: APT's Report

FY2021 Outlook:

In FY2021, the Company plans to accelerate its investment for growth. In FY2021, the focus would be to:

  • Improve its platform and grow its people resources.
  • Engage in co-marketing opportunities and invest with its retail partners.
  • Consolidate its market-leading position in the overall market.
  • Speed up its expansion into new markets to leverage early mover advantage.

Balance Sheet Position:

While worldwide trading and capital market environment are highly unclear, APT, with a strong balance sheet position (Pro forma cash: >A$1.3 billion, Pro forma liquidity: >A$2 billion), can continue generating impressive growth in underlying sales.

Conclusion:

Afterpay is well-placed in the current environment, with an impressive performance in FY2020, a strong balance sheet, and plans to expand in other geographical markets. These factors propelled the shares on the ASX, though they have tumbled in the past two weeks.

The positive outlook of the Company might generate confidence in the market participants. However, the ongoing uncertainty makes it difficult to predict how the APT stock would react.

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