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  1. #16
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    I have researched it deeply but dont think APT falls into this category. If a person hasn't got the up front money for smallish purchases they pay it off in 3 or 4 instalments. I guess they get hit with high int rates if they miss payment like a credit card or is it more punitive then that?

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    Quote Originally Posted by Joshuatree View Post
    I have researched it deeply but dont think APT falls into this category. If a person hasn't got the up front money for smallish purchases they pay it off in 3 or 4 instalments. I guess they get hit with high int rates if they miss payment like a credit card or is it more punitive then that?
    I have hardly researched it and I don't want to imply that APT is a predatory lender. I've just looked at all my financial holdings that have lay-buy, payday lending, reverse mortgages (again not saying that it is a bad product) etc offerings and decided to get out of them. I'm very worried about the personal debt levels not just in NZ but in other countries. Other companies I've divested from are HBL.NZX and CAF.ASX luckily almost all of them at the top of the cycle.

  3. #18
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    Sorry ,i meant i havn't researched it deeply,DOH!.. I take your point. Debt in the world is very high with many living beyond their means in this consumer conditioned world and it seems nothing is going to change that until this planet starts literally burning up.

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    Quote Originally Posted by Joshuatree View Post
    Sorry ,i meant i havn't researched it deeply,DOH!.. I take your point. Debt in the world is very high with many living beyond their means in this consumer conditioned world and it seems nothing is going to change that until this planet starts literally burning up.
    They split the payment over 4 payments, 2 weeks apart. There are no fees at time of purchase (fees are paid by the merchant). If you miss a payment you are charged fees and Afterpay block your account to stop you making more purchases. Late fees are an initial $10 and a further fee of $7 if the payment is not made within 7 days. Late fees are capped at 25% of the purchase price with a max of $51.

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    Pretty amazing growth released in today trading update.

    "Over 3.1 million active customers in the last 12 months, growing at an average of approximately
    7,500 new customers per day over Q2 FY19."

    Is anyone still paying attention to this stock? Seems to have huge potential.

  6. #21
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    You a smart recent buyer allf?.Up 13% today on $113 million turnover. No one wants to fess up as a holder? Whats dirty about it? worried about the govt review of loan artists ? the mkt aint.Not a holder atpit , missed the earlier boat.

  7. #22
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    Quote Originally Posted by Joshuatree View Post
    You a smart recent buyer allf?.Up 13% today on $113 million turnover. No one wants to fess up as a holder? Whats dirty about it? worried about the govt review of loan artists ? the mkt aint.Not a holder atpit , missed the earlier boat.
    I too missed the earlier boat JT... Maybe the boat has a lot more distance to travel yet? Theses high growth stocks are always so difficult to value however I find companies getting good results tend to continue performing well.

    Regulatory risk is definitely something to consider. I really don't see how a company providing zero fee interest free loans is dirty. They've also earning less from late fees now as a percentage of revenue for more sustainable merchant fees which is good.

  8. #23
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    I’ve been paying attention to APT for a while but haven’t invested. There is a lot of future growth priced in and I feel like it has grown so quickly that it’s hard to tell if they will fulfill that growth expectation.

    Off the top of my head, current SP is pricing in revenue and profit growth of maybe very roughly 5x, which would be maybe 20 million US customers. Certainly achievable but a real chance they will fall short too. Even if they keep growing customer numbers, will those customers keep using the service over the long term? Even that’s a little unknown so far.

    It’s definitely going to be an interesting and scary ride which may or may not pay off.

  9. #24
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    My recollections from my review of report and apparent strategy. (Usual E&OE and DYOR caveats apply)


    Analysis and Risk Assessment

    (1) APT SP rose when it seemed unlikely their activities would be impacted by any Govt action post the Royal Commission.
    (2) In the most recent report APT reduced the amount of revenue earned from people unble to pay on time reinforcing (1). APT have declined up to 30% of proposed transactions. APT approved customers are good for retailers as proven payers building from low initial $ levels.
    (3) Retailers like APT as its charges are less than Credit Cards. 1.75% compared with most at 2% or >. Retailers payments of 1.75% provide most of APT revenue. Every APT sale is more profitable for the retailer.
    (4) Terrific growth on any metric - AU US UK and potentially Europe and World. # Customers, # transactions, # retailers, $ value,
    (5) Fundamentally I see the key strategic metric is gross revenue at 1.75% of transaction $ and to me does not seem enough.
    (6) Retail customers are not targeted as revenue, to avoid possible Govt action or restriction ....
    (7) Second key fundamental APT is not yet profitable
    (8) Therefore the more you sell at 1.75% margin the more you lose, the more you grow or expand internationally - you get the picture
    (9) Huge growth without profit = ???
    (10) While the share price rose strongly up 47% in 8 weeks this year - ANZ Securities site today shows APT PE at -441

    Now of course if the fundamentals and strategy as above change then ...
    Last edited by Toulouse - Luzern; 27-02-2019 at 08:15 PM.

  10. #25
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    Quote Originally Posted by Toulouse - Luzern View Post
    My recollections from my review of report and apparent strategy. (Usual E&OE and DYOR caveats apply)


    Analysis and Risk Assessment

    (1) APT SP rose when it seemed unlikely their activities would be impacted by any Govt action post the Royal Commission.
    (2) In the most recent report APT reduced the amount of revenue earned from people unble to pay on time reinforcing (1). APT have declined up to 30% of proposed transactions. APT approved customers are good for retailers as proven payers building from low initial $ levels.
    (3) Retailers like APT as its charges are less than Credit Cards. 1.75% compared with most at 2% or >. Retailers payments of 1.75% provide most of APT revenue. Every APT sale is more profitable for the retailer.
    (4) Terrific growth on any metric - AU US UK and potentially Europe and World. # Customers, # transactions, # retailers, $ value,
    (5) Fundamentally I see the key strategic metric is gross revenue at 1.75% of transaction $ and to me does not seem enough.
    (6) Retail customers are not targeted as revenue, to avoid possible Govt action or restriction ....
    (7) Second key fundamental APT is not yet profitable
    (8) Therefore the more you sell at 1.75% margin the more you lose, the more you grow or expand internationally - you get the picture
    (9) Huge growth without profit = ???
    (10) While the share price rose strongly up 47% in 8 weeks this year - ANZ Securities site today shows APT PE at -441

    Now of course if the fundamentals and strategy as above change then ...
    They charge merchants 4% of total transaction value, their net interest margin is 2%.

    I bought into Afterpay at $7 and even then people said it was expensive. There is huge growth factored into the SP but this industry is taking off all around the world and afterpay certainly have the first mover advantage. They have a brilliant leadership team and haven't put a foot wrong since listing. Its a very volatile stock so if people are interested they can probably pick a time when it drops below $15.

    The numbers coming out of USA are extremely impressive and they definitely have they right approach of trying to build market share whilst the iron is hot.

  11. #26
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    Quote Originally Posted by allfromacell View Post
    I too missed the earlier boat JT... Maybe the boat has a lot more distance to travel yet? Theses high growth stocks are always so difficult to value however I find companies getting good results tend to continue performing well.

    Regulatory risk is definitely something to consider. I really don't see how a company providing zero fee interest free loans is dirty. They've also earning less from late fees now as a percentage of revenue for more sustainable merchant fees which is good.


    Boat still humming along, shows it wasn't too late to jump aboard. The real question though, is it too late now?

  12. #27
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    Afterfad - the next BIG Review TV

    This could literally be one on the biggest bubbles the ASX has ever seen!

    Before I begin, let me explain why you should read this long post. Firstly, I’m the guy who predicted the downfall of Big Review TV many months before anybody saw it coming (by the way I’m not Jonathan Shapiro), secondly, I am a merchant of Afterpay, and third, I’ve been following this company for nearly 2 years, yet this is my first post about it.

    What’s interesting about this stock is that it’s so easy to understand. Normally most tech stocks are very complicated to grasp. The fact that this stock could be explained to a 5 year old makes it unique. This is not a bad thing, it just makes it different to other companies. It really does beg the question; if this thing is so simple why is it worth so much?

    In order to answer this question, perhaps it may be better to ask, why is this worth so much NOW than before? Why has this “thing” all of a sudden appeared out of nowhere, and become a multi-billion dollar industry? What has happened in the time since the internet first appeared to now that has created the environment for this to flourish? Was this just a great idea that nobody happened to stumble upon or is there something else going on?

    The finance industry is funny, does it provide a product or does it provide service? If it is providing a service, what exactly is it serving? Time perhaps? One could argue that Afterpay is providing “time as a service”. As we all know ‘time is money’, so it has value. It’s easy to understand that borrowing and lending money has benefits to people and ever since antiquity man has known about this. However, why has it taken all this time to come up with the magic idea of “4 equal instalments”?

    As we all know, it’s a little more complicated than that...or is it? In fact, is Afterpay really a finance company after all? When you look at it more closely you will see that it is not. So what is it then? As you know, it makes it’s money not from lending but from “clipping the ticket”. In other words, it’s more of a product, not a service. Afterpay’s “customers” are actually “merchants”. Why do merchants like this product, easy, it increases cart conversions and order values, but like all products, it comes with a price, a small commission in this case. This all makes economic sense. Hence, we’ve seen a huge industry created, with massive growth, and Afterpay’s market value now measured in the billions.

    However, if Afterpay’s customers are actually merchants, then who are the end users of Afterpay, where do they come into all of this? Are they just pawns getting a free lunch? Perhaps. Or are they the ‘silent majority’ unknowingly holding all the power. Perhaps both. In fact, this is the key to understanding Afterpay, when you understand the end users, you can see the bigger picture at play.

    It helps to have a merchant account, but what you will find is that the typical end user is almost all young women entirely. The other huge trend I’ve noticed is that they all seem to use it before and after Christmas. I’ve seen this first hand as I run a small online business. Why do I have Afterpay? Why not, it’s easy to install and relatively cheap. I recommend it to other merchants, however, not as an investment with a market cap in the billions.

    The toxic part of this stock is the end users. You have a single demographic, using it once a year on average. This is why Afterpay defines it’s active users over a 12 month period - to capture the Christmas period.

    This brings me back to why is this happening now than before. With the raise of mobile technology over the last 10 years, more young women are online than before. They are also more likely to be at university or have a low paying service job. On the contrary young men are more likely to be at work, get paid more and are less likely to buy goods online using a form of credit. It’s as simple as that.

    Afterpay’s demographic is absolutely remarkable when you look into it. It’s the key to their growth but will also be the key to their failure. Or perhaps, a better word, the key to the ‘pop of the bubble’. This is why stock analysts were so slow to get on board with this company - they just couldn’t understand young millennial women. The finance industry is filled with old men, so they just didn’t get this company at first. When the growth numbers came in, they all jumped on board and pushed the stock into the stratosphere, where it remains today.

    This is why I’m calling this the “top”. Not because of any stock graph or indicator but because of the growth of end users does not align with the growth of merchants, who are the actual Afterpay customers. Increasing the number of merchants does not increase the number of end users. The end users are fixed. Even if Afterpay was available to every single merchant in Australia there is a finite amount of potential end users to capture. What Afterpay has done is convince the investment community that it’s potential market is much larger than it actually is.

    A good example would be “left handed” people. Imagine a company that only sold left handed items - think of Ned Flanders’ Leftorium on the TV show the Simpsons for example. Less than 10% of people are left handed, so the potential market size is 10%. When valuing this company we need to take into account that it is only 10% of the market size. This is easy to calculate, but what if the amount of left handed people are unknown? Or more interestingly, the concept of Left or Right is unknown to the market at all. A left handed store may generate a huge amount of sales at first, by filling a niche, but then all of a sudden reach a stopping point regardless of any additional growth input. If the market falsely identifies this initial growth without taking into account the total market size, then it’s easy to see how future earnings could produce wildly different valuations.

    This is essentially what I think is happening with Afterpay. The typical end user of Afterpay is actually only 1% of the market or less. A tiny number. Not zero, but small. Afterpay is a niche of a niche. Afterpay state that their active user numbers are in the millions, but I suspect, that over the long term it’s more likely to be 1% of that total. Using this calculation, on roughly today’s market cap, a healthy valuation for the Australian market would be $70m, a global company perhaps $700m. Where is the stock price today? Well north of that. Afterpay isn’t a scam or bad product, it’s just not well understood by the investment community. It’s a simple idea, but complex to understand how it’s being used in the market, why it’s being used, and who it’s being used by.

    There’s a good reason why Afterpay has been chasing global growth, there’s simply not enough young women in Australia for the company to justify its market capitalisation. It needs more so called “active users”. It’s easy to fool the market with statistics and graphs showing market size but without taking into account the market dynamics it’s similar to saying that a left handed can opener is going to be the best selling item on Amazon - it just won’t happen, even if left handed people love it!

    It’s hard to say when this thing will “pop”. The key is the Christmas period and calculating how many “Christmases” have gone by. The investment community values this company every day, however, there has only been two Christmases since the “buy now pay later” boom started. This is not a very long time. It was $6 during the 2017 Christmas and $12 during the last Christmas. Both of these have used the domestic Australian market as the catalyst. Now the expansion into the UK and USA market is set up for the next Christmas. If they can pull it off I can see the stock going $50+ easily. It should be easy to do as it’s like opening up another ‘left handed store’ in another market. It’s a very similar thing Big Review TV did, when it entered the US market, even though they gave the impression that they had only just started the growth phase in Australia.

    In fact, the similarities to Big Review TV are remarkably similar. Simple ideas, but difficult markets to understand. Big Review TV didn’t fail because of an accounting irregularity, it failed because the investment community eventually figured out the market. Once the investment community figures out just how small and niche this “buy now pay later” market is, this stock will collapse like Big Review TV.

    To summarise, this is my main argument: What exactly is an ACTIVE USER ON AFTERPAY?

    The company defines it as someone who has made at least 1 payment over a 12 month period. However, it’s easy to see that users who were only trialing the service would be counted as an active user for a rolling 12 month period - are these users really active? Furthermore, if a user makes just one payment each year, say during the Christmas period, they would be counted as continued active users, even though they made just one payment for the entire year. Also, how many test accounts, fraud accounts, and multi accounts exist on the platform? The simple truth is that it’s exponentially easier to attract a new user than it is to keep an existing one - or a better phrase “replace one”.

    Over the last two years, it’s been easy for Afterpay to generate new users, as the media has promoted this company and it has spread on social media. Also, a significant amount of marketing has been spent by both Afterpay and the merchants hosting the platform. This has lead to phenomenal growth of so called ‘new users’. However, just how many of these users are genuine long term users? We will probably never know but I submit to you, it’s likely less than 20%. Essentially, this company is suffering from Zipf's Law.

    So in other words, the active users on Afterpay is not 3.1m like the company states but only 600k. Then 80% of the revenue is likely to be generated by only 20% of these users, thus reducing the number down to 120k of actual ‘hardcore’ Afterpay users. These 120,000 people are likely generating almost all of the activity on the platform. In the Australian market, it’s likely reaching the maximum amount available, hence why global growth is not just ideal, it’s necessary to sustain this inflated growth metric of this company, and therefore the share price.

    At the end of the day, you have to look at the fundamentals. If you’re wealthy, there’s no reason to use Afterpay. If you’re middle class maybe you would use this service, but you’re already getting 50 days interest free on standard credit cards anyway, do you really need the extra time for the extra hassle? If you’re lower income, or young, yes, Afterpay does seem to make sense. However, poor people consume less and default more. Even Afterpay’s own statistics reveal that the average customer spend per month for active users is almost $400. Are we really to believe that young and poor people are spending this much per month exclusively on Afterpay? Ask any young person at university, they’re all broke.

    It’s easy to reconcile these numbers. A very small percentage of users are spending a huge amount, pushing up the overall average significantly. In a fast growing new company, it’s easy to conceal and distort user statistics. This is something Big Review TV would do, hide relevant user data and provide murky statistics that told a different story than what was actually going on - in other words, white lies.

    All you have to do is ask yourself do you use afterpay, if not, ask your friend do they use Afterpay, if so how much? If they do, they’re likely going to say something like “I tried it once or twice, it was OK but wasn’t for me” or “yes I use it but only sometimes”. However, ask enough people and you will find hardcore users who use it religiously. All “freemium” models follow this same strategy and experience this same phenomenon. It’s the very small percentage of active users driving the growth.

    There ultimately needs to be a genuine third party review of Afterpays active customers. All too often the market just takes “the numbers” from the company as absolute fact without questioning their authenticity or take into account the bias that exists. It’s just unbelievable to suggest that there is a linear growth profile, where by the platform is being consumed in the marketplace ubiquitously among young millennials.

    This company has done a great job of presenting itself with attractive models in their presentations and giving the impression that they are cool and modern. This all looks very similar to the way that Big Review TV presented itself.

    Anyway, best of luck to everyone here. I can’t wait to see how this unfolds.

    Bottom line is that this is a $500m company at most.

  13. #28
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    This seems like a very long way of saying that there is a lot of growth from US and UK priced in. If that growth doesn't happen then APT will be worth less than it currently is.

    At $28 where the SP is right now, I feel like the market is pricing in this growth as a near certainty. I liked it at $10 and on a good day maybe $20 but at $30 I struggle to see much future SP growth even as the company grows.

    As a ballpark, I reckon APT need to be processing maybe $30 billion of payments per year (say within 5 years) to justify today's market cap of $6.7B. Currently they are doing $3.5B. Is there 10x growth available to them? Who knows. And can they keep taking 4% margin as time goes on?

    I think if you're valuing APT at $500m then I don't think you're pricing in any future growth at all, but pricing it at $6.7B (market cap) isn't pricing in any chance of failure either.

  14. #29
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    Quote Originally Posted by mikeybycrikey View Post
    This seems like a very long way of saying that there is a lot of growth from US and UK priced in. If that growth doesn't happen then APT will be worth less than it currently is.

    At $28 where the SP is right now, I feel like the market is pricing in this growth as a near certainty. I liked it at $10 and on a good day maybe $20 but at $30 I struggle to see much future SP growth even as the company grows.

    As a ballpark, I reckon APT need to be processing maybe $30 billion of payments per year (say within 5 years) to justify today's market cap of $6.7B. Currently they are doing $3.5B. Is there 10x growth available to them? Who knows. And can they keep taking 4% margin as time goes on?

    I think if you're valuing APT at $500m then I don't think you're pricing in any future growth at all, but pricing it at $6.7B (market cap) isn't pricing in any chance of failure either.
    Agree with your summation.

    The author of that article has a somewhat pessimistic view of the space (and quotes some dubious statistics.) Personally I only see the BNPL (Buy now, Pay later) space growing, of which Afterpay has a great brand, and first mover advantage in. A large percentage of the population (especially in the US) do live paycheck-to-paycheck and will find great utility in the service.

    What the author is also missing is the psychological aspects at play. Paying something off over a series installments is psychologically less painful than a lump payment all at once. Even if people can afford it, they can't necessarily justify it to themselves. But Afterpay makes it easier.

    The fact is that the millennial cohort are not signing up for credit cards, but continue to use their debit cards tied to their mobile phones -- Afterpay has the ability to help fill that gap, and a very bright future ahead. And as the director Nick Molnar says, people don't want to take out a loan to buy a dress, they just want help budgeting for it.

    Charlie Munger always talks about the power of incentives. Both the customers love it, and the merchants love it, as it increases top line revenue. In Brazil the vast majority of retail goods are sold on installments (and the largest visible price on the tag is usually the installment, not the full price.)

    I genuinely think this a once in a decade/generation opportunity, and am positioned accordingly. Although I agree that the current valuation seems a bit ahead of itself. If they don't live up to their growth projections, it will violently correct. But if they continue to execute properly over the next few years, it could be much much bigger.
    Last edited by zgnz; 08-05-2019 at 02:58 PM.

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    Quote Originally Posted by zgnz View Post
    Agree with your summation.

    The author of that article has a somewhat pessimistic view of the space (and quotes some dubious statistics.) Personally I only see the BNPL (Buy now, Pay later) space growing, of which Afterpay has a great brand, and first mover advantage in. A large percentage of the population (especially in the US) do live paycheck-to-paycheck and will find great utility in the service.

    What the author is also missing is the psychological aspects at play. Paying something off over a series installments is psychologically less painful than a lump payment all at once. Even if people can afford it, they can't necessarily justify it to themselves. But Afterpay makes it easier.

    The fact is that the millennial cohort are not signing up for credit cards, but continue to use their debit cards tied to their mobile phones -- Afterpay has the ability to help fill that gap, and a very bright future ahead. And as the director Nick Molnar says, people don't want to take out a loan to buy a dress, they just want help budgeting for it.

    Charlie Munger always talks about the power of incentives. Both the customers love it, and the merchants love it, as it increases top line revenue. In Brazil the vast majority of retail goods are sold on installments (and the largest visible price on the tag is usually the installment, not the full price.)

    I genuinely think this a once in a decade/generation opportunity, and am positioned accordingly. Although I agree that the current valuation seems a bit ahead of itself. If they don't live up to their growth projections, it will violently correct. But if they continue to execute properly over the next few years, it could be much much bigger.
    Agree with all your points... but what if I told you there were 5 afterpays all gunning for the same end user (the customer using their debit, credit, what ever card) and merchants don't care about loyalty with any one provider so end up going with multiple/all of them? (given the technology these days is there to accept all of them - they are all basically the same)
    APT started first, doesn't mean it'll finish first.

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