The Afterpay Touch Group Ltd (ASX: APT) share price sank as much as 13% in early trade before rebounding. At the time of writing the payments company's shares are down just 5% to $$19.46.
Here's how it performed in the first half compared to the same period last year.
- Underlying sales processed through the Afterpay platform increased 147% to $2.3 billion.
- Active customers increased 118% to 3.1 million.
- Active merchants increased 101% to 23,200.
- Total income jumped 91% to $116.1 million.
- Gross losses of 1.1% of underlying sales, down from 1.6%.
- Late fees as a percentage of statutory income down to 17.6% from 22.5%.
- Net transaction loss of 0.5%, net transaction margin flat at 2.3%.
- Pro forma EBITDA excluding one-offs up 19% to $17 million.
- Loss after tax of $22 million.
How does this compare to the market's expectations?
According to a note out of Goldman Sachs, its analysts were expecting revenue of $113.5 million and a net loss after tax of $1.5 million.
So whilst Afterpay Touch beat on the top line, it has fallen well short on the bottom line. This may have led to investors hitting the sell button in a panic this morning.
However, it is worth noting that this loss is largely down to significant items such as share-based payments (predominantly non-cash) of $18.1 million and one-off costs related to its international business formation. If you adjust for this, its result would be largely in line with expectations.
What's new?
Much of today's result was pre-released in January with its trading update, so there were not many surprises.
But the company did update the market on some of its key metrics so far in the second half, including the continued growth in customer numbers. Since the end of the half Afterpay Touch has grown its active customer numbers by a further ~13% to approximately 3.5 million.
Similarly solid growth has been achieved with active merchants. They have increased 9% since the end of the half to 25,300.
Management also provided an update on its upcoming UK launch. According to the release, preparations continue to track to plan. It expects to officially launch in the UK market during the second half and U.S. partner URBN Group has signalled its intention to work alongside the company in the UK along with other local and international merchants.
Over in the U.S. market management appears confident on its prospects. It said: "Our experience to date confirms that the US scale-up opportunity is clear, supporting an accelerated strategy of reinvesting in the global opportunity."
As a result, its "near-term focus is on accelerating US and international growth, investing in key brand relationships, platform innovation and broadening global support and infrastructure." To support this the company intends to spend at least an additional $10 million in mid-term growth acceleration investment activities in the second half. This expenditure will relate to new key merchant co-marketing activities and an increase in fixed operating costs.
It certainly will be worth it if it allows the company to achieve its FY 2022 targets.
Management advised: "This accelerated growth strategy will lay the foundations for mid-term value creation. Following the intended near-term investment, we expect significant operating leverage and EBITDA growth as we scale towards our end FY22 target of over $20 billion underlying sales and net transaction margins of c.2% (post accounting changes)."
Should you invest?
I thought this was yet another strong half from Afterpay Touch and believe it demonstrates why it could be a fantastic buy and hold option.
It is a high risk one given the premium its shares trade at, but I'm confident its long-term growth will ultimately justify this premium.
Overall, it remains one of my favourite tech shares on the ASX alongside Altium Limited (ASX: ALU) and Appen Ltd (ASX: APX).
