The Afterpay Ltd (ASX: APT) share price has rewarded the bottom pickers having almost tripled since its late-March lows. Could there be an opportunity for those that missed the boat to enter this leading S&P/ASX 200 Index (ASX: XJO) tech share?
So far, so good
The company's recent 'business update and response to COVID-19' was incredibly positive, causing an almost 30% increase in the Afterpay share price on the day of the announcement. The update highlighted that the mature ANZ region continues to be highly profitable and underlying cash flow positive. The company considers this region a "blue-print for the profitability to be achieved in new markets over time".
For the month of March, strong sales continued across all markets with average daily underlying sales up 12% on January and February. This period showed the versatility of the business as online sales in March represented 88% of total global underlying sales. However, uncertainty began to emerge in the second half of March and early April as the introduction of government-enforced lockdown protocols across various regions started to take a toll on underlying sales. Global underlying sales in the second half of March versus the first half of March were 4% lower. Regionally, ANZ was 2% lower, US was 5% lower and the UK was 15% lower.
April has largely been positive in all markets with average underlying sales rebounding 10% against the second half of March globally. However, there is still significant uncertainty given the fact that lockdown measures have not been relaxed.
The economic ramifications of the coronavirus could have a negative impact on underlying sales. For example, Australia anticipates the unemployment rate to double in the June quarter from 5.1% to 10%. This could have been worse had the government not implemented the JobKeeper program – with more than 800,000 businesses registering for the program. Up to 6 million workers, almost half the Australian workforce, are expected to benefit from the 6-month wage subsidy.
Uncertainty ahead
While Afterpay's underlying sales to date have remained solid, new customer growth may be moderated if conditions worsen. The state of the pandemic in the US is far worse than any other country, and this could have a significant impact on Afterpay in the short to medium term given the size and sales potential of the US market.
The company has also planned to enter the Canadian market. However, the coronavirus is likely to impact the timing of its entry into this new region.
Afterpay has a very strong capital position with $541.1 million in cash and $355.7 million in debt as at 31 March 2020. It states that it does not see the need to raise capital in the foreseeable future.
Foolish takeaway
All things considered, I believe Afterpay is in a strong capital position to ride out the near-term risks and turbulence. Its short to medium term sales and customer growth may be impacted as economic conditions could go from bad to worse. However, the company has shown that its business model is flexible in becoming more online sales driven.
While the Afterpay share price has almost tripled since late-March, I believe the company is in a good place amidst this pandemic. So, I would certainly pay attention to Afterpay moving forward.
