A dual listing could potentially be on the horizon for Afterpay Ltd (ASX: APT). Could this act as a catalyst to drive further gains for the Afterpay share price?
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What are the benefits of a dual listing?
The main advantage of a dual listing is access to additional capital. This is why cash-hungry businesses such as Mesoblast Limited (ASX: MSB) and Piedmont Lithium Ltd (ASX: PLL) have successfully listed on both exchanges.
A dual listing also makes sense for companies that have operations in, or derive a significant proportion of their revenue from, the United States. In the case of Aussie biotech Mesoblast, the company's treatments must be reviewed by the US Food and Drug Administration (FDA) for approval. And for Piedmont Lithium, its flagship lithium project is located in North Carolina with initial offtake agreements signed with local companies such as Tesla.
With that in mind, it does make sense for Afterpay to explore the potential for a dual listing since the US market has become the largest contributor to its business. Furthermore, additional funding may be required to help fuel Afterpay's continued global growth.
What about Zip's dual listing rumours?
If this is all sounding somewhat familiar, that's because a similar story was surrounding fellow buy now, pay later (BNPL) provider Zip Co Ltd (ASX: Z1P) earlier in the year. You may recall that Zip shares surged by as much as 20% on 8 February after rumours the company was exploring a potential dual listing in the US surfaced.
But the rise in the Zip share price has arguably been just a partial catch up against Afterpay's monster valuation. Zip shares trade at approximately 29 times FY20 revenue, while Afterpay's revenue multiple has ballooned to approximately 67.
On 21 January, Zip co-founder Peter Gray told the Australian Financial Review that "even if you looked at us as a direct comparison to Sezzle, we would appear undervalued, and I think that one of the opportunities for us as we go to market this year is to bridge that valuation gap."
Why a dual listing might not appear as glossy as it seems
It might be worth taking a closer look at an already listed US BNPL share to gain an understanding of the sentiment for and performance of the sector in a different market.
Affirm Holdings Inc (NASDAQ: AFRM), for example, is one of the top three largest BNPL players in the United States. Affirm listed on the Nasdaq on 13 January 2021 at a listing price of US$39 with a market capitalisation of approximately US$10 billion.
It was then off to the races, with Affirm shares surging as high as US$146.90 by mid-February for a 277% return.
But following a tech-led selloff in late February, Affirm shares have never been able to fully recover, let alone keep up with the Nasdaq. Its shares breached the $100 level by late February, then slid back to the $80 mark by early March and briefly touched a record low of $63.02 on Tuesday this week. At these levels, Affirm trades at an FY20 revenue multiple of approximately 33.
As Affirm continues to grind around record lows, one could argue that the US market is not particularly excited about its own born and bred BNPL player. What this means for the Afterpay share price should the company's dual listing eventuate remains to be seen.
