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Why Is Afterpay Down 33% Today?

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 (ASX: APT) share price pummelled 33% today, following an agreement to pay the state of California Department of Business A$1.5m. This result stemmed from providing loans (Buy now, pay later scheme) to customers without having the license in California. Whilst, this news negatively affected Afterpay’s reputation the company has adopted the new license arrangement and is currently delivering its service in California as normal. Currently, Afterpay US has more customers using the service than Australia. This result demonstrates the strong values still sort after in the US despite a slowdown in services because of the coronavirus pandemic.

 

 

Afterpay is an Australian company and a market leader in buy now, pay later platform in Australia. The company has seen tremendous growth in 1H FY20, where the company recorded an increase in sales to $4.9b (up 109%) and net transaction margin to $102m (up 118%). Additionally, the company has expanded its services to 43.2k new active merchants (up 86%). Their aggressive growth strategy has seen them increase their marketing expenses to 0.7% compared to 0.3% in 1H FY19. While the expenses have gone up, the results have shown to be worth the spending.

The acquisition of ClearPay in the UK has seen positive results for Afterpay. The platform launched in May 2019 and during the 6 months of operations, the UK operations acquired 600,000 customers. This strong growth highlights the demand for this service worldwide and the skilled management acquired in the UK. Moreover, the partnership with MasterCard and Visa has helped them reduce costs and allows for room for future development opportunities.

One concern that has impacted Buy now, pay later platform is the regulatory action that could be taken by the Reserve Bank. The intervention by the RBA could see merchants impose a surcharge, on buy now pay later platform. This will make Afterpay operate like a credit card since consumers will have to pay an additional surcharge cost by using Afterpay.


 

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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