I don't think the consumer credit market is a sector with any real niches of competitive advantage. The excess margins will be competed away. Australia is only profitable because of default fees and the unsustainable credit charges.
I think it is ridiculously overpriced, the sort of margin, growth and scale assumptions that need to be just about infinite, sustained and exponential to allow a value anywhere near its price is beyond the power of my imagination.
Of course in stonk world thats a contrarian take, as is any consideration of value in a traditional sense, and there is a very real possibility the price will continue to go up for long enough to make buyers at current prices look like they know what they are doing. Not a game i want to play though!
I
think (that is to say, I don't know for sure) that some stonk valuations are valid in this low rate world. If you can borrow at 2% and buy a company growing from almost no earnings, but at 100% p.a., your investment quickly becomes cheap. In APT's case, Australian operations are profitable, and growing extremely quickly.
The competitive advantage that I think I see is the data-set and analytics behind their customer base. They're the largest BNPL player by far. So, they have the largest data set. Any algorithm used to assess a customer's ability to repay will be superior, as they have the biggest history to draw upon.
Also consider that:
- Customers repay within 2 months
- The retailer pays the 4% upfront (APT passes a lesser amt to the retailer)
- Customers can only buy products worth <$250 initially (in Australia)
- It takes many APT purchases before you can buy anything worth >$1000
- There is an upper total limit too, but I'm not sure what it is
Their demographic is one of high-income, low net wealth. In other words, they make big money and spend it (typically uni educated women in their late 20s/early 30s. I'm not trying to be sexist, just using APT info).
This group has stable employment (they're not contractors), so income is far more predictable than the average citizen.
The biggest risk I see is regulatory, but not anytime soon. The APT outcome is superior for the consumer, relative to credit cards. They pay no interest. Effectively, the retailer pays the interest (4% of purchase price goes to APT)
I think (without enough conviction to buy it myself), that APT will grow their user base to one larger than any other Australian company. Consider the number of potential customers they have across Aus/USA/UK. They have a potential customer base in the tens of millions - larger than the big 4 banks.
They also have superior execution to other BNPLs. Their progress compared to any other BNPL is better on almost any metric.
This has the potential to turn into Google sized returns.