Afterpay share price continues to grow despite coronavirus uncertainty

Afterpay Ltd (ASX:APT) had one of its best-ever months in March, despite fears that the coronavirus pandemic might crush consumer spending.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Since falling to a 52-week low of $8.01 on 23 March, shares of ASX buy now, pay later (BNPL) fintech Afterpay Ltd (ASX: APT) have come surging back in recent weeks.

In a little under a month, the Afterpay share price has shot up a staggering 260% to $29 as at the time of writing. And while this is still a fair way off the mid-February high of $41.14 it hit prior to the coronavirus crisis, it will still be a big relief to shareholders who had seen the darling of their portfolios collapse to its lowest price in almost two years.

What is driving the volatility?

It's easy to understand why the Afterpay share price collapsed in March. With the coronavirus pandemic sweeping across the world and countries going into lockdown, the economic forecast was growing increasingly bleak. Many retailers were being forced to shut their doors to customers, unemployment rates were set to reach unprecedented levels, and consumer sentiment had fallen off a cliff.

It was shaping up as a perfect storm for BNPL shares like Afterpay and its main competitor in Australia, Zip Co Ltd (ASX: Z1P). Both companies rely on high rates of discretionary spending in the economy to generate revenues. And with the coronavirus threatening to cripple the economy, people had fewer places to shop and less money to spend.

Surprising business update

So, it naturally came as something of a surprise to the market when Afterpay announced that March had been its third-best month ever in terms of underlying sales. In its March business update, Afterpay reported quarterly underlying sales of $2.6 billion, driven primarily by growth in the US. Underlying sales in the US region accelerated by 263% versus the March quarter of FY19 to $1 billion. As of 31 March, global year-to-date underlying sales processed by Afterpay was $7.3 billion, an increase of 105% over the prior corresponding period.

Another important metric that investors would have zeroed in on was the 88% of March global underlying sales that were done online. The lack of reliance on traditional brick and mortar retail is a good sign for Afterpay at a time when many companies are having to negotiate the complexities of doing business in a socially distanced world.

It wasn't all rosy though. Afterpay reported a drop in global underlying sales over the second half of March across all geographies. The UK was the hardest hit, with underlying sales down 15% in the second half of March versus the beginning of the month. This makes sense, as it was the first geography that Afterpay operates in to have introduced strict lockdown measures. However, considering it is Afterpay's smallest market, the overall impact to revenues would have been limited.

However, after that sluggish end to March, Afterpay has reported an uptick in daily sales so far in April. The company has also recently partnered with eBay Australia, and it continues to expand its footprint in North America, with a launch into Canada still on the cards for this calendar year.

What next for the Afterpay share price?

The success of companies like Afterpay and Zip typically depends on the health of the underlying economy. Both companies rely on people actively spending their disposable income. If that disposable income dries up, or there are suddenly fewer things for people to spend their disposable income on, it becomes much harder for companies like Afterpay to grow.

But in these uncertain times, it is difficult to predict how patterns in consumer spending will evolve over the next 6 to 12 months, especially as government stimulus packages continue to try and inject money back into the economy.

There are also going to be plenty of opportunities for Afterpay to adapt to the times. Perhaps its deferred payment service will see higher demand from cash-strapped households seeking to spread out their payments for staple products over multiple paycheques.

The point is that, while the coronavirus pandemic is an unprecedented global health and economic crisis, corporations may respond to it in unique and unpredictable ways. And while it's still only early days, Afterpay has already shown it can surprise the market.

Rhys Brock owns shares of AFTERPAY T FPO and ZIPCOLTD FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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.

More on Technology Shares

two computer geeks sit across from each other with their laptop computers touching as they look confused and confounded by what they are seeing on their screens.
Share Gainers

ASX tech shares outperformed US tech stocks by 2:1 in FY25. Here's why

Forget the Magnificent 7! Aussie tech shares had twice as much price growth as US tech stocks in FY25.

Read more »

A person sitting at a desk smiling and looking at a computer.
Technology Shares

3 ASX 200 tech shares to buy in July: Experts

The ASX tech sector delivered outstanding returns for investors in FY25.

Read more »

A man clenches his fists in excitement as gold coins fall from the sky.
Technology Shares

Guess which ASX 300 tech stock is jumping 11% on big news

Let's see what is getting investors excited about this tech stock today.

Read more »

Five people in an office high five each other.
Technology Shares

5 best performing ASX 200 tech shares of FY25

Some of the technology sector's biggest names led the charge in share price growth last financial year.

Read more »

Happy man and woman looking at the share price on a tablet.
Technology Shares

Tech takeover – two Aussie technology shares to watch

These two tech shares could be undervalued according to this broker. 

Read more »

Overjoyed man celebrating success with yes gesture after getting some good news on mobile.
Technology Shares

Guess which ASX tech stock is racing higher on big news

This tech stock is making a key acquisition.

Read more »

drone technology, drone defence, woman operating drone
Technology Shares

Was it a good idea to buy DroneShield shares in FY25?

Did this counter drone technology company deliver the goods for investors? Let's find out.

Read more »

Broker looking at the share price.
Technology Shares

Can the Xero share price deliver a 17% return after the US acquisition?

Can investors generate strong returns after Xero’s US acquisition?

Read more »