APT - Afterpay Limited

[luutzu]

I find the ethical argument strange.
Users avoid the credit card traps and payday loans companies. No one should be buying the banks as their behavior in respect to credit cards (ignoring all the other things) has been very poor e.g. 24% interest rates.

It amuses me they are sponsoring groups to attack Afterpay and directly requesting the Morrison Government to destroy the Afterpay model.
I first got involved when my nieces started using it. They don't have credit cards as they don't want debt traps.

Afterpay is a credit card disruptor.

AfterPay actually charges 25% on their targeted members. Plus that average of 4% on retailers.

That's pretty damn outrageous.

I know they say it's $68 or 25%, whichever is less... But that's per item right? Each item they could theoretically go up to where it's around 25% penalty.

Credit cards give you 55 days no interest right? AfterPay give its members 2 weeks instalment... so that's 56 days in total but with the fortnightly repayment, they require payback earlier than the traditional credit providers.

So if members all pay ontime, APT won't make money. They'd be lucky to break even. So their model relies on members forgetting or not having cash on time to repay.

For investors, that's the good news.

The bad news is that once members can't pay on time; won't be able to pay the late fees either. APT can't charge compounding interests and will have to chase up the debt. That costs money but for not much further benefit beside those additional fees the debt collector charges.

 

[galumay]

Afterpay is a credit card disruptor. It is a way of buying clothes, dentist etc. without paying interest with an agreed payment plan. What is wrong with that?

I dont really see it as a credit card disrupter, given the very small amounts a user can have outstanding with APT. Also a % of users will be ending up putting the APT debt on their credit cards anyway.

Whats wrong with it from an ethical point of view will differ with an individuals ethics! Hence you see no issue. For me one of the ethical issues is that the end result is likely we all pay more so that some can access short term debt. That is a consequence of the model that makes its profit mainly from the retailer rather than the consumer.

Also I wasnt saying it should be an issue for everyone, just that its an issue that any investor should consider and not just dismiss out of hand.

What I tend to see with highly hyped businesses is that every potential negative raised about the business is quickly dismissed out of hand, and then reinforced to coat with a layer of confirmation bias.

 

[Knobby22]

I think the Chairman explains it better. Underlining is mine.


I think it’s important to explain this element of our competitive advantage in more detail as it really is
fundamental to our story. Under our business model:

▪ Afterpay’s revenue is based on merchant fees, not on customer debt

▪ We do not make our profit from customers and users

▪ We make more money when customers buy what they can afford, pay on time and stick to their simple instalment plan

▪ When our customers get into trouble, we lose money

This means that for Afterpay, things like responsible spending are more than words. They are fundamental to the success of our business. And this means that we could not be more different to traditional credit products. It’s this difference that has helped us to build trust with our customers, and trust with our retail partners.

And we back this up with our actions.

If we get it wrong, and a customer misses a payment, they cannot use Afterpay again until they settle their account with us. Could you honestly imagine a traditional credit company stopping you from buying anything else or going deeper into debt because you missed a single payment and didn’t pay off discrete items in full?

These are unbreakable rules of our model, our community and our business. These unbreakable rules prioritise customer payment responsibility.

And everything we do incentivises our community to adhere to these rules:

▪ Afterpay is a free service for customers who pay on time

▪ Customers must pay purchases off in full in a short time period – its about budgeting and buying to “own” and not “rent” – you can’t “kick the can down the road” with Afterpay by way of paying us a fee or otherwise

▪ Afterpay is for discrete purchases – not a line of credit

▪ Customers are suspended if a single payment is late – that means bad debt cannot accrue or revolve - and we intervene as early as possible in the debt cycle to stop people getting deeper into trouble

▪ Similarly, late fees – if charged, are minimal, capped and don’t accumulate

▪ And, strict spending caps that start low for first time customers and increase only with demonstrated positive behaviour - and even then the maximum individual purchase limit is capped at $1,500

We know that these rules and incentives work because the data reinforces this point:

▪ Overall Afterpay rejects around 30 percent of the purchase requests we receive.

▪ Approximately 95% of payments received in FY18 did not attract a late fee

▪ Over 90% of monthly transaction volume comes from returning Afterpay customers, which is only possible if these customers use the system responsibly and their payments are up to date.

▪ And over 85% of our customers prefer to pay with debit cards rather than credit cards


Furthermore, our average transaction values and balances outstanding are low:

▪ Our average balance outstanding is just over $121, compared to average Australian credit card debt of over $4,000

▪ Of those customers that have positive balances outstanding >90% of them are less than $500; And

>75% are less than $350

Despite our business growing exponentially, Afterpay’s default rate has declined and remains very low

on any comparative basis


FY18 Gross Loss = 1.5%

- 44% lower than the other buy now pay later1

- 90% lower than payday lending2

- 79% lower than other consumer leasing finance providers3


Why are we so different?

Because we employ a model that relies on merchant fees to generate profit rather than charging the customer

Reflecting these metrics, but going beyond them, I am particularly pleased to report that today

Afterpay is the most trusted digital payment platform in Australia

This is especially important because all of our competitive advantage - what makes us truly unique and valuable - is most fundamentally about trust.

On the key topic of TRUST, it is interesting to note that in July 2018 Roy Morgan surveyed 1,200

Australians and found that:

▪ Of all the 18 sectors tested, Banks had the lowest Net Trust Score of all

▪ And by significantly more than double the next least trusted sector – which, incidentally, was

Telcos


▪ In trend terms each of the four pillar banks have come off peak customer satisfaction ratings

pre-2015, to where they are today


While this has been going on, the finance sector has seen the arrival and growth of –

new entrants, new competitors, new models and new concepts in finance.


A new generation of customers are trusting a new generation of financial services.


And at the top of this is Afterpay. Afterpay’s Net trust Score according to Roy Morgan was +61

compared to the Banks at -14.

 

[tinhat]

Afterpay’s revenue is based on merchant fees, not on customer debt

Afterpay don't charge interest on the money they lend out. I can assure you that the lenders which the stated business plan is relying upon do. Afterpay's revenue model relies upon earning merchant fees. I think these facts have been well established and discussed here now.

Much of the discussion here has been about factoring for bad debts and the sensitivities of the model to fundamental items in the accounts; debt, revenue, bad debt expense, interest.

The Roy Morgan trust score for banks might be bleak. Who is in love with their bank or their landlord? I doubt that a low market research score is going to be the reason for anyone defaulting on their mortgage just as much a I doubt that Scott Morrison's approval rating as PM is going to dictate the GDP figures. I would also bet that Coca Cola probably scored higher as a brand a few decades ago than it does now, but is the product any different?

If we could just believe everything that is in the company reports (or the economist and analyst forecasts) there would not be any need for this discussion or these fora.

 

[bigdog]

Half yearly report due Feb 21 Thursday and should be VG news expected

Over the last 12 months the All Ordinaries index is down approximately 3.1%.

Fortunately, not all shares on the index have performed as poorly over the period. In fact, some have not only pushed higher during this time, but more than doubled in value.

The Afterpay Touch Group Ltd (ASX: APT) share price has rocketed 110% over the last 12 months. Investors have been fighting to get hold of the payments company’s shares after its strong start to life in the US market demonstrated the significant potential of the Afterpay platform globally. Afterpay Touch recently advised that its US business processed $260 million of underlying sales in the first half of FY 2019, with annualised underlying sales now in excess of $500 million. In the ANZ market approximately $2 billion in total underlying sales were processed through the platform during the half, more than double the prior corresponding period.

 

[bigdog]

Westpac Bank is trying to compete with Afterpay!!!!

YOU MUST HAVE A CREDIT CARD!

I have a Westpac Credit Card and on Wednesday last week I spent just over $500 charged to my card.

On Friday, I received email from Westpac offering my to used new "Large Purchase SmartPlan" with terms of 3, 6 or 12 months, our 0% p.a. Large Purchase SmartPlan may make paying off big ticket items or a large, unexpected expense, a little easier.

https://www.westpac.com.au/personal-banking/credit-cards/smartplan/?searchsource=search-results&kw=smartplan&cat=services,-support-&-faqs&rank=1&result-type=natural

Using link above you review of Frequently asked questions

Listed two of questions answered as follows

4694

 

[Knobby22]

It's pretty much what SPT SplitIt is offering which is what I thought would happen as it is really just an app. I can't see it doing much to Afterpay. The, advantage of Afterpay is you avoid the need of a credit card and it's traps.

Thanks for the heads up.

 

[Sdajii]

The chart is looking very nice for a breakout! Looks to me like it will shortly retest $18 and if it can beat that, $20+

 

[Sdajii]

Well, we did indeed break out, we did indeed retest $18, but after failing that, I sold out and took my profit. Good thing I did as the next day (today/Friday) we dropped further. I sort of considered buying back in today under $17 but it seems we're in a precarious position and it may now be equally likely that we'll fill the gap to around $14.45 as breaking $18. Will definitely buy back in if we fill the gap down to $14.45. Seems entirely likely now that we'll spend some time between $16 and $18 without anything interesting happening for a while.

 

[bigdog]

https://www.livewiremarkets.com/wires/afterpay-early-traction-in-the-usa

Afterpay: Early traction in the USA
Michael Frazis
Frazis Capital Partners


We’ve been tracking Afterpay’s US roll-out by following inbound traffic on sites like SimilarWeb, which helped us ride out the recent volatility. SimilarWeb showed months ago that Urban Outfitters, a US store, was the number one source of inbound traffic, ahead of any Australian website. This was quite an achievement, given the firm had only been operating there for a few months, and an important indicator of early momentum.

10% of online retail in Australia is now processed by Afterpay, and the opportunity in the US and UK is orders of magnitude greater. If the firm achieves similar success in the US, Afterpay could be valued in line with payments peers like Stripe (~$20 billion) or even PayPal (~$105 billion).

The real surprise for us was Afterpay’s success in-store, which now accounts for over 15% of sales.

Afterpay posted a strong increase in US inbound traffic in December 2018.

In our opinion, Afterpay is the single best way to buy something on the internet. The value proposition for the customer is clear: free credit, and a seamless username and password purchasing experience. This is far easier than typing in credit card details and a lot less cumbersome than Paypal. The value proposition for merchants is also straightforward: an immediate and easily measured increase in sales.

Regulation is a risk, but as the Australian real estate market reels in the aftermath of considerable political attention, policy makers are hopefully sensitive to the unwelcome side effects of restricting lending. Putting burdensome regulation on one of the few drivers of retail demand would not be wise, in our opinion, nor welcome.

Afterpay’s approach to credit risk is far more democratic than arbitrary tests of income and spending. The firm allows most to borrow small amounts, then quickly cuts off those who default, while allowing larger purchases to those who prove reliable. This is precisely how lending should work. And every month of progress in the United States reduces the impact of an Australian regulatory setback.

Everyone seems to want to invest in data these days and Afterpay’s is particularly valuable: they know which of their 3.1 million customers will repay a small, short term loan, and which will not. With every passing week, Afterpay weeds out more defaulting customers, leaving them with an increasingly responsible and profitable user base.

Afterpay has a surprisingly good lending business: the loans are small (~$150), short term, quickly amortised, free for consumers and can’t compound into significant amounts. These are characteristics of good credit risk, in stark contrast to credit cards and personal loans, which are expensive, enforced, and for those unable to keep up with payments, can quickly accrue into ruinous long-term liabilities.

In return for taking fairly benign credit risk, Afterpay earns ~4% from merchants. This doesn’t sound like much, but annualises to a far higher rate than personal loans or credit risks, all for a superior risk profile.

The firm has clearly hit a resonant chord amongst consumers. Competitors lack Afterpay’s simplicity, and mostly give consumers a traditional line of credit couched in the language of fintech. Zip, frequently cited as a competitor, offers a wallet with a spending limit. Affirm in the US offers comparatively high value loans with interest. Klarna similarly, offers loans and charges interest. None of Afterpay’s competitors have shown the discipline of Afterpay’s management to focus on one, easily described (in a single word!) credit product.

Contrary to the commentary of some local value investors, it’s very possible to form an analytical valuation of the stock. By forecasting their future customer base, average transaction value and transaction frequency per year, it’s possible to model revenue under different scenarios. By applying their net transaction margin (which can be flexed by financing costs, operating costs, defaults etc) you can come up with a profit figure and form a valuation. As you might expect, much depends on their growth runway in the United States, which is why we consider their early momentum and traction so relevant.

It’s often hard to say why one product succeeds while a similar one fails, but in this case it’s clear that Afterpay has that magic pixie dust that makes it popular with consumers and indispensable to merchants. Perhaps it’s the simplicity and discipline of the product, the zero interest model, or even just the name, but there’s growing evidence from the US that shows this not a solely Australian phenomenon. If so, the firm’s best years are still ahead of it.


One month SP Chart:
Low $12.86
High $18.00
40% increase in month

I own Afterpay shares and is my tip for February ASF comp

187

 

[leyy]

Great post bigdog. I am in my mid 30's, have no issues with money and generally purchase online retail on my credit card for the reward points and the free interest period (I always pay off the balance).

Your post hit the nail on the head, the more I use afterpay the more I prefer it over a credit card as a method of payment. It is so user friendly, good user experience, simple and fast. I also get the added bonus of linking my visa credit card on it so I get a longer interest free period with the split payments of afterpay and 55 days from my credit card plus I still get reward points with my credit card.

There is so much potential for afterpay on verticals market for payment. Besides retail, think of paying your utilities, water/council rates, strata, insurances, telco's.

Hospitality, Airlines, Accommodation and Restaurants.

The list goes on & on, anything that can be transacted online or instore with a credit card, paypal or other payment method has got some real competition.

Trying to find another dip/retracement for a sizeable top up before the next leg up.

 

[bigdog]

APT Interim half yearly report will be issued Thusday February 21 2019

Approaching at time high at $23.00

Share price has been increasing $12.08 at Jan 4 to $18.88 currently (+56%)

Motley Fool reports
https://www.fool.com.au/2019/02/18/why-2019-is-shaping-up-to-be-the-year-of-afterpay/

Why 2019 is shaping up to be the year of Afterpay
Nikhil Gangaram | February 18, 2019

Much like its customers, investors have fallen in love with buy now, pay later platform Afterpay Touch Group Ltd (ASX: APT), with the APT share price rocketing over 150% in the past 12 months.

Here’s why I think the best is yet to come for Afterpay and why 2019 could be a launching pad for its future.

At the start of this year, Afterpay released a business update announcing that sales for the first half of FY19 were $2.2 billion, up 140% in comparison to last year’s result of $916 million. The platform which has been lovingly adopted by millennials processed around $2 billion in Australia, with a further $260 million coming from the USA.

International expansion continues
A report released by ASIC in December 2018 showed a 400% increase in new Australian customers who had adopted services like Afterpay during the year. This is exciting and bodes well for the company as they look to further expand into the USA and UK, both of which boast millennial consumer markets that dwarf that of Australia. Analysts from Goldman Sachs believe that the US market for Afterpay is about 15 times larger than the market in Australia.

Currently, in the USA, Afterpay is used by over 650,000 customers and has signed agreements with over 3,600 retailers. Notable names include the likes of Urban Outfitters, Forever 21, Boohoo and Kim Kardashians beauty brand KKW Beauty. According to the company, this growth rate is far greater than what was experienced in Australia after a similar period. Afterpay is still in talks with two investment banks with the potential of funding over $4 billion in annual sales.

The UK expansion of Afterpay is still in its infancy, with initial feedback from retailers being positive. According to analysts, the UK boasts the worlds third largest e-commerce market with favourable dynamics when it comes to millennial consumers. In 2018 Afterpay acquired local buy now, pay later business ClearPay Finance Limited. This acquisition is a sensible strategy given the different regulatory dynamics of the UK.

How the “Buy now, pay later” Senate inquiry could impact Afterpay
In 2019, the first speedbump for Afterpay will be the Senate inquiry into the regulation of the buy now, pay later sector. The review, which ends on the 22 February, is looking at whether businesses like Afterpay and Zip Co Ltd (ASX: Z1P) should fall under national consumer credit protections.

In my opinion, the outcome of the report should not do any harm to the company whatever the result. The worst-case scenario would be that companies like Afterpay would be required to conduct credit checks on individuals. I believe that such a ruling would have minimal negative ramifications on the business given its unique model which focuses more on making money from merchants rather than the consumers.

In my view, the ability of Afterpay to empower users and wean them off relying on credit cards is a great boon and should see the movement grow in the future along with the company and the Afterpay share price.

 

[bigdog]

SP down today before half yearly report will be issued Thursday February 21 2019

any info/suggestions on why the drop?

Suggestion from activity below was robot war with 109 share trades

 

[Knobby22]

Up nearly every day for a month, pullback has to occur, short termers will want their profits.
Probably drop again tomorrow.

 

[Smurf1976]

SP down today before half yearly report will be issued Thursday February 21 2019

any info/suggestions on why the drop?

Today's high 19.19 and thus far the low has been 16.90 so a pretty decent fall in % terms for stock of this price. Dropped by about $1.40 in 4 minutes at one point so that's pretty steep.

Someone knows something regarding tomorrow's report and is selling out?

 

[bigdog]

Volume currently 2,991,782 for 19722 (average 151 shares per trade) and total shares is higher than any day for February

Daily Volume back to Feb1

Charting for SP for today

 

[peter2]

Definitely some profit taking today before the report tomorrow. Although I think some of the profit takers panicked a bit this afternoon. They probably think someone knows something about the details of tomorrows report.

 

[Wyatt]

Nervous Nellies did something similar in A2M yesterday, gave some a chance to buy a bargain it seems.

 

[luutzu]

Nervous Nellies did something similar in A2M yesterday, gave some a chance to buy a bargain it seems.

AfterPay the business will show massive losses tomorrow, I guarantee you.

Its business model is not working. Won't work.

If given enough cash and enough brain at its board, it might make critical changes to the current model and may survive. But chances of that happening in time is zero.

Currently, the late fees does not cover the costs to recover debt, the write downs, and a conservative estimate of recoverable doubtful debt.

In fact, the net expense in delay/default of repayment is actually higher than its interest expense in FY18. That's messed up.

With that new $117M equity, and I'm guessing a couple hundred more millions in new debt... expanding into the US... defaults and writedowns will be huge.

But I'm sure its share price will rocket up soon enough.

But if I were to short... I'd wait for the coming property crash, quickly followed by a great recession and credit crunch with job losses... Watch the default rate then.

 

[leyy]

IMO there is a very high probability APT will report some crackers results tomorrow, with some record growth numbers in US, update on UK expansion and overall transactions.

Let's see who is right luutzu