Afterpay Touch (APT) - An Absolute Screamer

[zgnz]

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.