Is the Afterpay share price a buy?

Is the Afterpay Touch Group Ltd (ASX:APT) share price a buy?

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Is the Afterpay Touch Group Ltd (ASX: APT) share price a buy?

Investors this week have clearly thought the answer was yes to that question this week with the buy now, pay later business' share price up by more than 6.5%. Nothing seems to be able to stop the investor positivity surrounding Afterpay.

It isn't as though anything particularly incredible happened this week. In an announcement Afterpay's co-founders said they wouldn't sell any more shares during FY20 and the company delayed its share purchase plan (SPP) for regular investors until the final audit report for AUSTRAC has been considered.

I didn't think there was anything particularly exciting about the update regarding AUSTRAC either. Afterpay has provided AUSTRAC with details of three candidates that can conduct the external audit in line with the AUSTRAC notice. It could be premature for investors to think nothing will come of the AUSTRAC audit, particularly for the period in the early part of the date range of the review in 2015 and 2016.

I'm also seeing more of the argument that Afterpay's merchant fees may be too high for retailers to live with over the long-term as more of Afterpay's users become recurring customers, rather than bringing in new business for the retailers. If a merchant fee reduction were to happen, Afterpay would take a substantial hit to revenue and its bottom line considering less of its revenue is coming from late fees these days.

There's also a growing group of businesses wanting to take a slice of Afterpay's pie including PayPal, MasterCard, Zip Co Ltd (ASX: Z1P, FlexiGroup Limited (ASX: FXL), Splitit Ltd (ASX: SPT), Sezzle and others. I wouldn't call increasing competition a positive for Afterpay's outlook. 

Foolish takeaway

Afterpay is priced for resounding success at the moment but there are plenty of short-term and long-term hurdles that the company needs to overcome before it is profitable. I'd rather invest in a profitable tech share like Altium Limited (ASX: ALU) over Afterpay.

Motley Fool contributor Tristan Harrison owns shares of Altium. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended FlexiGroup Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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