The Afterpay Touch Group Ltd (ASX: APT) share price appears to have shaken off Visa fears and risen 10% since last week. Could this be a buying opportunity, or should investors continue to wait patiently on the sidelines?
To start, let's take a closer look at the sector itself. The past week has seen two pieces of buy-now-pay-later (BNPL) sector-related news surface that all investors need to digest. First, Zip Co Ltd (ASX: Z1P) announced a quarterly update for June 2019. While the update is company specific, it does provide some idea of how the overall BNPL sector is performing. Second, Australia's largest non-bank lender, Latitude Financial, has revealed its strategy to enter the BNPL sector with a unique credit product.
How did Zip perform?
Zip cited that it had exceeded all financial targets set at the beginning of FY19, with transaction volume up 108% on prior year to $1.1 billion (target $1.0 billion) and customer numbers up 80% to 1.3 million (target 1.0 million). The company saw record quarterly revenue of $27.0 million, up 17% on Q3. All financial and non-financial metrics read well, with a remaining $144.0 million in undrawn funding facilities and strong momentum heading into FY20.
Zip's strong growth figures across revenue, merchants and transactions shows that the sector remains robust, despite regulatory concerns and fears that new competitors will enter the market, which also bodes well for Afterpay. While the focus of this article is on Afterpay, I will slip in my opinion that Zip is going from strength-to-strength and is potentially a buying opportunity at today's prices.
Is Latitude a threat?
In December 2018, Latitude Financial acquired Auckland based fintech 'Genoapay', which provides a no-interest payment instalment service, allowing shoppers to pay off purchases totalling up to $1,000 over a 10-week period. Latitude has a customer base of 2.6 million customers and a loan volume of $8.5 billion. It now intends on bringing Genoapay to Australia.
The BNPL sector is no doubt a crowded space with the likes of Afterpay, Zip Pay, and Splitit. Latitude possesses a large client base, but needs to demonstrate that it can efficiently roll out its new product in Australia.
Foolish takeaway
I believe the bullish nature of the general market and strong quarterly update from Zip is a strong sign for Afterpay. The sentiment should translate to further strength in the Afterpay share price and the potential to test its previous highs.
