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.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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