The Afterpay Ltd (ASX: APT) share price has been quite volatile over the past week, caught up in the ASX turmoil triggered by concerns about the impact of the coronavirus.
So, let's review Afterpay's growth story in light of the company's latest financial results released to the market last week.
US and UK markets fuelling growth
In the company's 1H20 results, Afterpay continued its strong growth trajectory, reporting underlying sales that increased by 109% to $4.8 billion. This was driven by increased usage from existing customers, along with a 134% jump in active customers and an 86% lift in active merchants.
With this, Afterpay posted a record number of customers globally of 7.3 million. The company reported total group income of $220.3 million, which represented 96% growth over the prior corresponding period (pcp).
Afterpay is still displaying continued strong growth in its home market of Australia and New Zealand (ANZ). However, it is now starting to face growing competition from the likes of Zip Co Ltd (ASX: Z1P) and Openpay Group Ltd (ASX: OPY). The ANZ segment reported $3.1 billion of underlying sales for the half, up 55% on the pcp. The active number of merchants within Australia and New Zealand grew by 63% to 35,500.
However, the main driver of Afterpay's growth during the half was the United States region, which posted a 445% increase in underlying sales to $1.4 billion and a 443% lift in active customers to 3.6 million.
Afterpay continues to market good progress on its international expansion strategy into the US as it begins to gain an early mover advantage in that huge market. The US region now represents over 30% of group total underlying sales and has the largest number of customers actively using the platform.
The company has also recently entered the United Kingdom where it has already gained a solid start. The UK business is now growing rapidly, however, from a very small base.
Afterpay's global expansion into the US and UK is now accelerating at a considerably faster rate than what we experienced in ANZ when it first launched. Additionally, the company is planning to launch in the Canadian market by the end of 2020.
Outlook over the next few years
Afterpay is confident it is well-positioned to exceed its medium-term growth targets. Based on the results released to the market last week, I am reasonably confident of Afterpay achieving these targets if it can maintain its current market rollout momentum.
The company is now focused on exceeding its mid-term underlying sales target of over $20 billion by FY22 and has an aim of reaching 9.5 million active customers by the end of this financial year. Afterpay expects to achieve higher profitability in US and UK markets over time, in line with the ANZ market.
This rapid rollout, however, is proving very costly for Afterpay and will continue to impact profitability in the short term. This could lead to more share price volatility, with potential sharp corrections to the Afterpay share price if the company doesn't hit these targets.
Foolish takeaway
Factored into Afterpay's current share price are expectations for rapid growth to continue over the next few years, especially since Afterpay is still not profitable.
However, barring any major regulatory barriers and growing opposition from the likes of US financial services giants such as Visa, I believe Afterpay is well-placed to meet its medium-term targets moving forward.
