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AfterPay’s Volatility In Share Price During Period Of Market Instability

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Afterpay Limited (ASX: APT) is an Australian financial technology company operating in the United States, United Kingdom, New Zealand and Australia. Afterpay has a market capitalisation of A$2.63 billion.

Updates on Coronavirus

The coronavirus (COVID-19) was first reported from the Wuhan province in China on 31 December 2019. The Department of Health announced a total of 204,700 confirmed cases and 8,400 deaths globally. As of Thursday (19 March 2020), there have been 565 confirmed cases and 6 have died of COVID-19 in Australia. As of Wednesday (18 March 2020), the Federal Government has upgraded its travel advice ban to a ‘Level 4’ for the entire globe due to the outbreak of COVID-19, for the first time in Australia history.

Updates on share price

In the last month, Afterpay’s share price has fallen 75.5%. Afterpay is currently trading at A$13.05. The downward trend is due economic uncertainty caused by COVID-19.

How COVID-19 effects Afterpay?

Afterpay are facing several new concerns considering the COVID-19 outbreak. However, it is important to note that Afterpay has a business model, balance sheet and customer base in place that creates a level of protection in difficult periods. The following processes provide a dynamic system and risk mitigation capability that enables new measures to be implemented if required.

More specifically, Afterpay’s product design and operating model has built-in risk mitigations that include dynamic transaction value limits by customer and real-time approval of each transaction. Moreover, Afterpay has put in place appropriate level of risk mitigation measures into their operating model that takes account of the current economic environment.

In response to COVID-19, Afterpay has decided to proceed with Afterpay Day (19-20 March 2020). The two-day event is an online shopping initiative to encourage consumers to re-engage with retailers by offering sitewide discounts. It is important to note the majority of Afterpay’s underlying sales (<75%) are generated from online transactions. That said, Afterpay continues to support merchants who are rapidly looking to increase their online exposer in the current market environment. Consequently, Afterpay will be redirecting a portion of their budgeted marketing spend for this purpose.

What is the outlook for Afterpay?

Afterpay is not immune to the market concerns which is evidenced by the share price falling by 75% in the past month. However, Afterpay management notes that the company has not seen a material impact on business activity and timing of instalment repayments or transaction losses to date.

On a positive note, Afterpay possesses cash on balance sheet of A$402.1 million and liquidity position of A$672.1 million provides Afterpay with the capacity to both continue to fund operation expenditure and expand business activities in the medium term. More specifically, Afterpay retains over A$1.09 billion of warehouse facilities in place with major financial institutions providing the company to grow underlying sales by an additional A$15 billion.


 

Disclaimer:


This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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