Afterpay Ltd (APT)

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27 August 2020

Results 

Full Year 2020

Full Year 2019

Change

Underlying Sales ($bn)

11.1

5.2

+112%

ANZ Underlying Sales ($bn)

6.6

4.3

+52%

US Underlying Sales ($bn)

4.0

0.9

+330%

Active Customers (m)

9.9

4.6

+116%

EBITDA (excl. one-offs) ($m)

44.4

25.7

+73%

Bloomberg Consensus ($m)

44.0

 

-

Statutory Profit/(Loss) ($m)

(22.9)

(43.8)

+48%

Afterpay (APT) sales and customer numbers surge as expansion continues      

What happened?

  • Afterpay (APT) – the largest ASX-listed buy-now-pay-later (BNPL) provider – posted a 73% surge in EBITDA to $44.4m as expected, while it recorded a $22.9m net loss over the 12 months to 30 June 2020 due to its aggressive expansion internationally. APT is yet to post a full year net profit since making its ASX debut in June 2017.
  • The lift in EBITDA was well telegraphed, as APT significantly upgraded its guidance (forecasts) on 19 August, flagging EBITDA (excluding significant items) of ~$44m (almost twice the $20-25m guidance provided on 7 July). APT shares have surged by 22% since update its goals this month. 
  • Here is how the buy-now-pay-later process works in a nutshell: The consumer makes a purchase either in-store or online with participating retailers using Afterpay (essentially on credit). The purchase is then split into four equal instalments paid by the customer every two weeks. This is paid directly to Afterpay. From a retailer’s perspective, they’re paid upfront by Afterpay as soon as the customer completes their order. A customer will be hit by fees should they miss payments.
  • No dividend was declared as expected.

Why did it happen?

  • Sales grew strongly across all its markets. Sales in Australia & New Zealand rose by 52% to $6.6bn. While the local market is still the largest contributor to Group sales, growth has been slowest as its most mature market. Due partly to COVID-19 restrictions, online sales grew by 46% in FY20. New merchants integrated over the year include eBay, Ticketek, Webjet, Chemist Warehouse, Priceline, SHEIN, General Pants (NZ) and Qantas Frequent Flyer. 
  • Its rapid expansion overseas (US & UK), contributed $4.6bn to sales (vs just $900m a year earlier). Sales grew by 330% in the US alone due partly to an increase in online spend. APT now has 5.6m active customers in the US and most monthly orders now come from returning customers. It signed agreements with brands like Athleta, Banana Republic, Gap, Lululemon, Puma, Native Shoes and Huda Beauty. Afterpay went live in Canada in August 2020.
  • While its UK business is still only contributing ~5% of the global business, it now has around 1 million active customers in the market. Days ago, APT announced plans to enter markets in the European Union, following the acquisition of Pagantis, a BNPL company which operates in Spain, France and Italy. This acquisition will cost the group a minimum of €50m (~A$82m). It expects to complete the deal by December 2020 and is still subject to Bank of Spain regulatory approval. 
  • Despite the doubling in active customers, sales, total income and rapid growth in newly entered markets; APT posted a $22.9m loss over the year. This was partly due to $3.5m in one-off costs associated with its international expansion. Salaries and employee benefits, together with IT expenses also more than doubled. Depreciation and amortisation expenses surged and costs linked to acquisitions rose. An independent audit required by AUSTRAC cost the company $3.7m. 
  • APT raised close to $800m via a capital raising in July 2020 at a slightly discounted price of $66 per share ($93.99 on the open this morning) to help fund its expansion. 
  • Co-Founders Anthony Eisen and Nicholas Molnar sold 10% of their Holdings in APT in July (2.05m shares each), capitalising on the meteoric rise in the company’s share price. This was ~$270m worth of stock. They still own ~14 per cent of the business, making them APT’s two largest shareholders. 
  • Chinese tech giant Tencent bought a 5 per cent stake in APT three months ago. Tencent owns Chinese messaging and payment app, WeChat which has ~1.1bn users (slightly more than WhatsApp) and facilitates 1bn commercial transactions per day. 
 

Where to now?

  • Looking forward, APT said that online sales in ANZ accelerated into July and August. US underlying sales have continued at record levels experienced between April and June. APT added 450 additional active merchants to the platform since 30 June 2020. It plans to continue growing in Canada and the US and expects its recent European-based acquisition of Pagantis will facilitate its EU expansion. Across the region, APT said ‘initial steps to explore opportunities in select Asian markets will also be a focus in FY21. No specific earnings guidance was provided but it continues to expect heavy investment to fund its growth. 
  • APT has been one of the strongest performing stocks on the ASX this year, enjoying five straight months of double-digit share price gains. APT’s share price has tripled so far this calendar year and it is trading near a record high. APT shares rose on today’s result. 

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