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.
