Afterpay Touch Group Ltd (ASX: APT) shares are fresh from a 19% plunge yesterday after the SMH reported Afterpay and payday lenders, debt management firms, and other buy now pay later platforms not being looked at in the Royal Commission will face a Senate inquiry.
However, Afterpay has made a quick recovery in early trade and is up 13% at the moment.
Could this mean the end of Afterpay? I definitely wouldn't go that far.
Afterpay responded this morning with a staunch defence of its business model.
One of the company's main arguments was that it is unique because it provides a free service to customers if payments are made on time, it doesn't charge interest or monthly fees, the instalment periods are short and if payments aren't made on time it will immediately suspend a customer's account so that they aren't caught in revolving debt.
Afterpay said that the overwhelming majority of consumers pay on time and have never incurred a late fee. Its late fees are capped and "minimal" according to the business. It said the late fees in total are lower than the costs Afterpay incurs when consumers don't pay on time, meaning Afterpay is incentivised to promote responsible use and discourage late payments.
Afterpay pointed to the recent decision by the New Zealand Government not to include products like Afterpay in local credit regulations because it is different to traditional credit.
Even so, Afterpay welcomed the opportunity to participate in any industry review and is support of appropriate regulation, including oversight from ASIC.
So, is Afterpay a sell?
It's fallen by around 33% since the end of September. That certainly has taken out a bit of the valuation risk of Afterpay. However, it's still trading at 60x FY20's estimated earnings.
To Afterpay bulls now could be a great time to buy because it has fallen so much. If the Senate agrees with Afterpay's assessment of the situation then it may face no difficulty. In-fact some of its competitors may be crimped.
Plus, Afterpay is looking to expand in the much bigger markets of the US and UK – Australia may not be the most important market in a year from now.
I don't think Afterpay is a sell. If I were looking to buy Afterpay shares then the current price volatility could be a perfect time to buy a few shares. However, I'd never want Afterpay to be a major part of my portfolio considering what it does and the regulation risk. But, I personally am not going to be buying Afterpay shares.
