I greatly respect your views on many companies but in this case I think that your assumptions are incorrect on two counts luutza.
1. The assumption that the company will struggle to make a profit; even though it has just started and there are massive startup costs they are still making a profit if you exclude depreciation and amortizations expenses (as shown by the figures you published earlier). Getting 4% of each sale is massive and becomes more efficient the longer it goes and the larger the base as software does not cost more because you use it more. This company will spin off massive amounts of cash within two years. To me any other advertising etc. is just a side issue.
2. The assumption that people will successfully pay off a few items and that get so far into debt with Afterpay as they build credit that they can't pay or will deliberately defraud Afterpay. Firstly, with the defraud issue, most people don't think that long term. I am more worried about the initial customers, short termers after any cash.
Secondly, there is a certain pride to be given more credit and favoured status. People love that and hate to lose it, particularly as their friends use Afterpay also. I would not be surprised to see a reward scheme occur once they have finished the rollout in the UK. That is not to say there is not the risk of fraud from professional shysters and it is important that Afterpay ensure they are dealing with real people at all times.
Thirdly, not paying will result in their credit rating being damaged, this is becoming more and more importsant in the modern world. Most people are smart enough to avoid it. Millennials are smart.
If you look at their debt written off/collected... well, from other places, it's not really "collected", mostly written off.
That ratio grown 6.97x versus its receivables of 2.45x, underlying sales of 3.89x.
That shows that default rate is a lot higher as the business scales, not lower or remain constant.
Further, debt written off at $22.759 is about 9% to receivables. This compare to 3.15% in FY17.
The scaling is not reducing the default rate, it multiplies it.
So even if we isolate, ignore, the start up costs as I think I did above, the business model itself does not work.
Someone else pointed out that APT loses a similar amount of money while its sales and revenue grew by a lot from FY17 to FY18... so that could be seen as it's losing less while growing strongly.
But remember that APT raises some $140M in new equity soon after FY18 book closes. They also borrow too right?
You could then look at it as spending new cash from shareholders and bankers, and losing the same amount of cash. Might as well do nothing and lose the same amount.
Its business model is not sound.
And its claims about perfering members who can pay on time, not be late and charged a fee.... that's total Bull.
I mean, sure management can have some creative license in their presentation... but that's just outright lying to investors. Not to mention the "1.5%" default claim they keep on making.
While technically true that they've made provision for that 1.5% default on the entire amount they loaned out... their business model mean that that total amount that is their actual Revenue is not $2.2B but rather some $142M.
So the $32M provision, and the actual $22M in default... compare that to the total revenue is not 1.5%. That's just a class action waiting to happen.
As to the membership preference... if all members were to pay ontime, no late fees. How in the world will APT make their money?
They'd have to either lower the interest expense their lenders are charging, and also demand a higher discount from their retailers.
I mean, if interest expense is some 3.6% while retailer discount is 4% average... who's going to pay for the operating costs, the marketing, the IT guys, the accountants...?
So they're very dishonest.
But yea, I'm just saying what I thought of it. Maybe I'm way off the mark but yea. So far I don't really buy the whole concept of AfterPay as a business.