Forum Topics APT APT Afterpay Touch Group Ltd General Discussion
Tom73
Added 3 years ago

Block & Tackle

Today Square announced its changing its name to “Block” citing that Square related to the seller business where as the business was about building an overarching ecosystem, hence a different name was needed…

Also, today APT has postponed the Scheme meeting from December 6 due to delays with regulatory approval from the Bank of Spain. The deadline for the approval is 21 Feb but they expect it to be approved by mid January and are looking at ways to proceed with the Scheme pre-approval.

Neither announcements have an impact on my view on valuation. The APT share price will be smashed today due to market moves in the US overnight, not these announcements.

Disc: I own APT (RL+SM)

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Hands
Added 3 years ago

Another company changing its name to get a better result on their google search term....meta(verse), block(chain), (_____)coin, ether(eum), (X)reality

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Tom73
Added 3 years ago

Jack resigns as Twitter CEO 

Jack Dorsey (CEO of Square and Twitter) has resigned as CEO for Twitter (see tweet below). Given APT will become 20% of the Square business in early 2022 it is good to see that Jack now has one CEO job to focus on. His split attention was an issue that now seems to be addressed, I am sure he could do both jobs, but he’s going to do a better job focusing on one

There isn’t a lot of cross over between the Square and Twitter business, but you could argue that Square’s consumer customer base has something in common with Twitter uses, so having a figure on the pulse will help – but I don’t see that as worth the lack of focus.

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Disc: I own APT (RL+SM) and hence will own SQ.

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Bear77
Added 3 years ago

22-Oct-2021: Just a comment on @Slymeat's APT straw today discussing PayPal's "PayIn4" vs Afterpay. I believe PayPal only offer this service to their customers who have track records of paying using PayPal, i.e. no chargebacks or disputed transactions, and they also require more than one payment method to be in file. For instance I have 4 credit cards and a savings account linked to my PayPal account, others might have a savings account and one credit card, but PayPal's terms of use do make it clear that if one payment method fails, they will use one of your alternative methods of payment until the payment settles. If none of your payment methods work, I would imagine you would be unable to process any further payments using PayPal until you pay what you owe them.

I am what you might call a PayPal heavy user, because I was burned a few years back, or inconvenienced really because the bank reversed all of the transactions for me, when my credit card details were stolen from one of the online stores that I was using. I strongly suspect it was epharmacy.com.au, the online arm of Chemist Warehouse. I ended up being charged thousands of dollars for stuff I had not ordered and did not receive from an online electronics store in Sydney and from Telstra. All sorted, but from that point on I have used PayPal for online payments and have had no issues. And I do order a lot of stuff online. Almost everything, including our family's weekly groceries from Woolworths, prescription meds, alcohol from Dan Murphys, all of the essentials, plus a lot of other stuff.

The big advantage that Paypal's "Pay In 4" has over Afterpay is that Paypal do NOT charge late fees, ever. Afterpay derive significant income from late fees.

There are a few other big players also entering the market, such as:

Apple's Pay Later service:

Apple Launching (AAPL, GS) "Buy Now, Pay Later" Installment Plan Service (AFRM) - Bloomberg

Apple And Goldman Sachs To Launch Apple Pay Later, A Buy Now Pay Later Service (forbes.com)

Apple And Affirm Pair Up As BNPL Goes Global | PYMNTS.com (04-Aug-2021)

And CBA:

StepPay - a new way to buy now, pay later (commbank.com.au)

Does have late payment fees, and a $1,000 limit.

My personal view is that Anthony Eisen and Nicholas Molnar are selling Afterpay at exactly the right time. They are getting out at the top of the market for Afterpay. There is plenty of competition coming, and first-mover-advantage is no longer the advantage that it has been.

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Disclosure: I do not hold shares in APT, PayPal, Apple, or CBA directly, but I do hold MFG and also own units in some of Magellan's listed funds (MHH and MGF) and I believe they still hold PayPal and Apple.

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Tom73
Added 3 years ago

Thanks for the customer/user insights @Bear77 & @slymeat, while I hold APT/SQ as my largest position I am not a user of any BNPL service and always pay my credit card off each month - using more as a cashless convenience rather than credit.

It is clear from both your experiences that customers are going to have their own preferences on what they do and don't like about each respective BNPL offering. In terms of mechanics of the offering (pay in x instalments over y and a late fee/no fee), there are going to be differences, but most are at the margin and I don't see them as the key consideration for good customers. They are important for bad customers who cannot mange credit and are loss making customers for any BNPL, even those who charge late fees, so are undesirable, which is why I actually like that APT charges a late fee.

I see the key consideration for customers is more centred on personal shopping preferences, as Bear77 has highlighted why PayPal suits him. These can be very sticky, so getting a customer first or being embedded with merchants you use regularly is going to be an edge. PayPal has a massive base to work off in this regard, so is going to be a key player. Likewise APT has successfully attracted merchants as a promotional tool to customers and is the first mover in the space, tapping into millennials dislike of or lack of access to credit cards.

This is where the merger (yes merger, will explain below) with SQ is so interesting for APT. It adds 70m Cash App consumers (40m monthly active) to the 16m APT already has and adds millions of merchants to the 100k APT has.

The ecosystem approach SQ has around it’s Cash App is sticky habit-forming attraction APT needs to be the BNPL of choice when a consumer is at the checkout. The merchants SQ has are mostly small, but they are prolific so expand the reach for APT, who’s merchants are concentration on medium to large retails.

APT needed to expand it’s offering to be able to compete with what the likes of PayPal have brought to the table. SQ also needed to offer a BNPL solution to round out their eco-system offering to consumers and provide a link between their Cash App and merchant services, which APT does very well via promotional assistant for merchants. They needed each other and combined APT will have around 19% of the total company in the deal and the founders are staying on (not selling out on a high). 

The price is virtually irrelevant due to the script nature of the deal and if you look at the share price movements of both companies over the last 2 years the volatility and movements have been insigne, it’s more about the split of the total pie – hence a merger.

The BNPL game being played out is part of a much larger retail payments and banking services game. There is room at the top for a few because as the customer insights tell us – one size does not fit all, but to be competitive APT and SQ needed each other to stay at the leading competitive edge of the race.

I hold APT as my largest position, so am obviously bullish on the outlook, but I am open to all thoughts on it. I very much enjoy reading any test of my thesis on APT and insights this great community bring. 

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Bear77
Added 3 years ago

Thanks for the feedback guys. I note that PayPal does NOT require more than one form of payment before they offer their "Pay in 4" service @slymeat. I also note that the APT founders are staying on and taking script rather than cash. APT is not a company I follow closely at all, and a quick skim of some news reports about the merger had made it sound very much like APT was being taken over by Square and that Tony and Nick were cashing in their chips after all of their hard work building the company up from nothing to the huge company (by Australian standards) that it is today. Happy to stand corrected on those two points.

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Dominator
Added 3 years ago

I have just been taking a look at APT financials as an excerise better understand the hype, potential value and a learning exercise in accounting. I can't see anything but a perpetual cash burning machine when you look at the accounts. First big warning sign is looking at the presentations, there seems to be a theme of  "underlying management adjusted EBITDA*` (+5 small text notes)" or there own metrics they deem important. I get the feeling standard accounting rules are inconvient for them? Is EBITDA compared to NPAT a relevant measure when you are a finance based company?

Moving to the cash flows, they look nothing like the P+L statement. P+L is based on revenue from transations rather than the actual sales and receivable payments from users in the cash flow statement, this part makes sense to me. I also understand that the cash goes out before the cash comes in for APT so you do have to account for the time difference in receiving the cash from users. However, looking at the financing section, all you see is capital raising and debt issuance that is keeping the company afloat. Very high cash flow losses are recorded in the operating + investing cash flow statements but in the P+L statement losses don't appear so bad. 

Anyways, I know this sounds like bear case straw more than a forum post but I am hoping to start a bit of a conversation to see if someone might be able to provide me with some guidance or if you see the same structural issues as I do?

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Dominator
Added 3 years ago

On further reading of 1HFY21  presentation the change in receivables is added to the operating cash flow. This gives a better understanding of the real operating cash flows accounting for the time difference between when cash comes in and goes out. As a result of using this method the operating cash flows are neutral rather than a large loss but doesn't show any sign of strong profitability.

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