Is the Afterpay Touch Group Ltd (ASX: APT) share price a buy?
The buy now, pay later company's share price continues to be volatile, ending the week down 4% on Friday.
Afterpay is attracting negative attention after hiring Michael Saadat from the Australian Securities and Investments Commission (ASIC) to become the Head of Regulatory Affairs at Afterpay according to the Australian Financial Review.
The questions being raised are regarding the ethical nature of going from the regulator camp to the 'other side' so quickly and at a time when the politicians and regulators are taking a closer look at the sector – even if Afterpay has been acknowledged as a leader in the industry.
Mr Saadat was the NSW regional commissioner for ASIC and, according to the AFR, notified ASIC chairman James Shipton on Wednesday of his resignation. However, Mr Saadat was forced to sign a confidentiality agreement when he resigned, meaning he can't utilise what he learned in his job in the private sector.
Even so, hopefully Mr Saadat can help Afterpay for the reasons the company hired him.
The ASX is starting to fill up with buy now, pay later competitors to Afterpay. Zip Co Ltd (ASX: Z1P), Splitit Ltd (ASX: SPT), FlexiGroup Limited (ASX: FXL) and now newly-minted Sezzle Inc (ASX: SZL).
As Magellan Financial Group Ltd's (ASX: MFG) recently wrote as a general point about markets, "Capitalism is brutal. Typically, excess profit opportunities are competed away in short order." Will Afterpay's transaction margin be competed away? Will the potential growth in the US be hampered by Sezzle?
Afterpay certainly had first mover advantage but it now faces many other competitors with a similar game plan. Zip Co recently signed up Woolworths Group Ltd's (ASX: WOW) Big W and I'm sure it plans to win over other large businesses.
Foolish takeaway
Afterpay is investing heavily for growth, so it's still a while away from making a profit. It's trading at 92x FY21's estimated earnings. I hope Afterpay does do well, but Afterpay's growth journey seems to be getting tougher as each month goes by with the AUSTRAC audit currently ongoing. I think there are better opportunities out there.
