The Afterpay Touch Group Ltd (ASX: APT) share price has found its stride again and is up nearly 25% in less than 2 weeks. The company provided a business update last Wednesday that reiterated its strong performance across all metrics, from customer acquisition, new merchants, key partnerships and regional performances. This business update may have just put any previous concerns to rest.
Why were things going south?
The failed WeWork IPO and increasing concerns regarding high valuation, loss-making tech companies started to affect investor appetite for growth shares. Many ASX200 market darlings such as Appen Ltd (ASX: APX), A2 Milk Company Limited (ASX: A2M) and Altium Limited (ASX: ALU) have been sold down and have only recently started to gain some share price traction.
Furthermore, UBS had slapped a $17 price target on Afterpay, citing low barriers to entry, ease of replicating the product and regulatory risks. It believed that because Afterpay was trading at double the valuation of peers such as Mastercard and Visa, its share price could half within the next 12 months.
Has Afterpay put doubts to rest?
I feel as though Afterpay will always be destined to do great things. It's an unstoppable force that will meet little bumps along the way. Whether it's the belief that it will be knocked out by bigger players, increasing competition, regulatory concerns, insider sell-downs, capital raisings, merchants turning away from BNPLs, time and time again, Afterpay proves the doubters wrong.
The business update
Afterpay's business update on 13 November was impressive. The company had 6.1 million active customers at the end of October, a 137% increase on the prior corresponding period. There are no signs that this customer acquisition momentum is slowing down – with an average of 15,000 new customers joining the platform per day, October was the largest customer acquisition month on record. Afterpay also reported that customers who had joined the platform during FY15–17 were now purchasing, on average, approximately 22 times per year.
There were 3 key takeaways from Afterpay's update for the ANZ region. Firstly, the company has diversified its service offering to include the healthcare services, with Afterpay now being offered at more than 2,500 dental and optical practices.
Many spectators have also commented on payments giants such as Mastercard and Visa launching their own BNPL product offering. However, this business update has witnessed Afterpay entering a strategic partnership with Mastercard to help scale Afterpay's business and deliver services to merchants with greater efficiency and flexibility. The Afterpay share price had previously tumbled on news that Visa was going to enter the BNPL space back in July 2019. However, this partnership shows that Afterpay can work in unison with these payments giants.
Finally, the Afterpay service is expected to go live with eBay Australia in 2020. The opportunity is huge – eBay attracts some 11-million unique monthly visitors and 40,000 Australian small–medium business that will now have the ability to provide their customers with Afterpay services.
The US business generated an underlying merchant sales of $0.7bn in the first 4-months to 31 October 2019, or 25% of total merchant sales. Much like the Australian segment, the US business experienced its highest monthly customer acquisition in October, with over 9,000 new customers acquired per day on average. Afterpay has stated that the UK customer numbers remain higher than the US and Australian segments at the equivalent stage of lifecycle.
Foolish takeaway
The Afterpay story lives on as the business continues to bring in new customers, merchants and strategic partnerships. While there could be continued volatility in this space due to regulation and competition, in my opinion it is ultimately noise and presents an opportunity to enter this phenomenal growth story.
