The Afterpay Ltd (ASX: APT) share price is pushing higher on Friday following an update from one of its newest and arguably biggest competitors.
In afternoon trade, the payments company's shares are up 2% to $149.41.
This leaves the Afterpay share price trading just a touch short of its record high.
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What was the update?
Overnight, payments giant PayPal released its fourth quarter results and provided the market with an update on how its buy now pay later (BNPL) offering was performing. This follows the launch of the service during the quarter.
For the three months ended 31 December, PayPal delivered total BNPL payment volume of US$750 million. It also finished the period with over 10,000 merchants and nearly 3 million active customers. The company also reported that it experienced a 40% repeat customer rate.
Management commented that the growth in its BNPL service was the biggest positive surprise during the quarter.
What does this mean for Afterpay?
Goldman Sachs has been looking through the result and has made a few observations.
One is that PayPal has facilitated as much gross merchant volume in its first quarter as Afterpay did after five. It was also the same with its customer numbers, which matched what Afterpay achieved after five quarters of operation in the United States.
Though, it is worth noting that PayPal already has a significant customer base to convert into BNPL customers. So, this isn't a true apples to apples comparison.
The US BNPL market is strong
Another takeaway from this update that Goldman notes is that "the strong launch of PYPL's service is another data point which suggests BNPL demand in the US is very strong."
The broker estimates that there are now at least 37 million BNPL accounts that have been registered in the US market. Though, it notes that the number of users is likely to be materially below this figure. This is because there will be consumers using more than one service provider or have registered an account but not used the service.
From these, Goldman Sachs estimates that Afterpay accounts for 8.5 million customers.
It commented: "The latest Sensor Tower data would suggest that APT had reached just over 8mn customers at the end of 31 Dec 2020 (vs. GSe of 7.8mn) and may be over 8.5mn by the end of January. This could suggest some upside risk to our 30 June 2021 target of 10.3mn."
Is the Afterpay share price in the buy zone?
At this point, Goldman Sachs doesn't see value in the Afterpay share price and has retained its neutral rating and $99.90 price target on its shares.
