Shares in listed buy now, pay later company Afterpay have risen over 2,000% since it listed on the Australian Securities Exchange with managers saying there is still more to come.
The financial technology firm listed in June 2017 after being founded in 2015 and has since risen 2,480% at 7 July, 2020. The ASX 200 has risen 16% over the same period.
Its rapid growth was unfazed by the market downturn with the firm returning 108% during the first six months of 2020.
Business model
The firm’s remit means it is “free to consumer” who don’t incur interest on payments but do get charged late fees if they miss a payment. After initial home growth in Australia, the firm expanded into the US and UK and announced a strategic partnership with Visa while Chinese technology firm Tencent also took a 5% stake.
Jonathan Wilson, manager of the Clime Smaller Companies fund, said: “Afterpay’s rise has been phenomenal. It’s hard to imagine the company didn’t exist a touch over five years ago. Now it’s home to some of Silicon Valley’s top talent and is quickly becoming a household name in the US.
“What really got us interested early on was how quickly Afterpay took share of check-out against the likes of PayPal at individual retailers. We saw this over and over in Australia in the early days. Underlying merchant sales increased 10-fold in Australia over the last three years. We are witnessing a similar dynamic in the US and the UK.”
Luke McMillan, head of research at Ophir, said: “Afterpay has been so successful because it provides big benefits for both retail merchants and consumers. People are cutting up their credit cards, particularly younger consumers, and turning to BNPL.
“It allows them to get their goods or service now, space out their payments and pay no interest. Merchants love Afterpay as user tend to buy more often and in larger amounts, plus they return their goods less. It’s a win-win for both sides of the platform.”
Company outlook
“Afterpay is attacking a truly huge $6 trillion dollar market opportunity for potential annual sales through its platform. With current merchant sales through the Afterpay platform at an $11 billion annual run rate, the sky truly is the limit,” McMillan said.
Afterpay is currently one of several firms in the buy now, pay later sector with rivals including Zip and Sezzle but McMillan said he hoped Afterpay would be able to maintain its scale with future innovations.
“The end game for the sector is very likely consolidation just like we saw for other payment methods where Visa and Mastercard and to a lesser extent Amex won out with the other players falling on the scrap heap. Those who can’t innovate and meaningfully improve the offer will lose out to the scale players,” he said.
Wilson added: “Retail in general is obviously doing it tough, however the players with strong online offerings are taking up a lot of the slack. Afterpay reporting accelerated customer acquisition during this period, which will probably continue until there is a return to normal”.
