29-June-2021:  This morning I placed an order with ePharmacy and paid using Paypal, and was offered an option to pay in 4 equal interest-free installments if I wished to, instead of paying the entire cost up front.  This offer was made directly by Paypal, not by another provider such as AfterPay or Zip.  Paypal is now competing head-to-head with all of the other BNPL providers, and they have the largest global customer base already.  

See here:  https://www.itnews.com.au/news/paypal-launches-new-bnpl-service-in-australia-561965

and here:  https://smallcaps.com.au/paypal-enters-australian-buy-now-pay-later-space/

And this is now live.

Also CBA has this:  https://www.commbank.com.au/digital-banking/buy-now-pay-later.html?mch=ps&gclid=EAIaIQobChMIvf6BiLa78QIVTCQrCh3H6AEiEAAYASAAEgJoVPD_BwE

However, I see Paypal as the biggest threat to companies like Afterpay, particularly as they try to expand further in the USA and in other geographies overseas.

07-Mar-2020:  I am not invested in APT, however I do note that the IT sector (including FinTechs) is the largest sector within the S&P500 in the US and it's one of the smallest sectors in our ASX200.  Information Technology companies account for just 4% of the ASX200 (the ASX's top 200 companies).  I therefore believe that the few tech companies that we do have to choose from here are more likely to get overbought and highly priced than might otherwise be the case.  This has included all of the WAAAX stocks at various times, of which APT is one.  It is also then not particularly surprising that when the market corrects or when there is a sustained sell-down or bear market, the sectors that have run the hardest are more likely than not to be the ones that fall the most.

The tech-heavy NASDAQ in the US has just fallen -12.54% in 14 days, one of the fastest corrections in history for that index (a "correction" is a 10% fall by definition).  Back home, over the past 18 days (13 trading days), since Tuesday 16-Feb-2021...

• The S&P/ASX200 Index (XJO) has fallen -3%
• The All Ordinaries Index (XAO) has fallen -3.4%
• The S&P/ASX200 Information Technology Sector (XIJ) has fallen -16.5%
• The S&P/ASX All Technology Index (XTX) has fallen -15%
• APT has fallen -24.8% from $153.46/share to $115.40.

Some sectors, like Energy and Financials are actually positive over that same period - Financials were up +3% - which is what's saving our XJO and XAO indices from looking a lot worse, particularly as Financials is the largest sector in the ASX200.  It's why many of us are feeling a lot more pain or staring at a lot more damage than what the headline index numbers are suggesting has occurred.  Unless you've got a market-weight allocation to our big banks, which is a lot (and I don't), or better (even more bank shares), then you are likely to have seen heavier falls in your portfolio(s) than experienced by the ASX200 or the All Ords indices.

From December 21, 2020, APT and XRO will enter the S&P ASX50 index.  OSH & VCX are the two stocks moving out to make room them..

APT is also entering the ASX20 index (replacing IAG), which is a MAJOR milestone!  

Other index inclusions and removals:

ASX100:  In: IEL, MIN, REH.  Out: ILU, FLT, NHF.

ASX200:  In: KGN, REH.   Out: AVH, COE, WSA

ASX All Technology Index:  In: 3DP, 4DX, BID, DTC, FDV, FZO, HTG, LBY, MMM, OTW, TNT, WBT, YOJ.  Out: RAP.

All of these changes will occur prior to trading on Monday December 21st, 2020.  See here.

14-Nov-2020:  From two days ago (12-Nov-2020):  https://www.livewiremarkets.com/wires/afterpay-buy-now-pain-later

SIMON MAWHINNEY from Allan Gray Australia (deep value investors) gives a decent Bear Case for APT here:

Afterpay – buy now, pain later?

Afterpay has been a sharemarket darling, with its share price rising almost tenfold over the past two years alone. The price has fallen a little since starting this article, but market consensus remains optimistic. To us, however, the risks seem heavily skewed to the downside. We explore Afterpay’s attractiveness, or lack of it, from a long-term investment perspective below.

Afterpay is a buy-now-pay-later facilitator which allows its users to split the cost of purchases into four equal two-weekly instalments over six weeks (with the first instalment paid at the time of purchase). It does not charge its users interest, caps late fees and pauses accounts when customers miss a payment. Its revenue is derived by charging retailers a percentage of the merchant sales facilitated by Afterpay.

Let’s start with some numbers...

--- Click on the link above to read more ---

[I do not hold APT shares.  Allan Gray Australia are Value investors, not Momentum or Growth investors, what's more, they are "deep value" investors, so tend to only invest in companies that are almost universally hated by the vast majority of market participants at the time AG invest in them.  As such, Afterpay is exactly the sort of company that Simon Mawhinney from Allan Gray would NOT touch with a 20 foot barge pole, so it's little wonder that he has a bear case ready for APT and is happy to share it.  I am highlighting it only because all good bull cases and bear cases are going to include some truths and some undeniable facts, and for those who do hold APT shares, it's good to at least hear a decent bear case, even if you don't ultimately agree with it.]

07-Oct-2020:  https://www.livewiremarkets.com/wires/it-s-all-about-growth-in-buy-now-pay-later

It's all about growth in Buy Now Pay Later

By JAMES GERRISH, Market Matters

Last week I sat down with Shaw & Partners Analyst Jono Higgins for an update on the BNPL stocks as we enter a strong period for online retail. I rate Jono highly in this space and his insights are well worth a listen.

The “Buy Now Pay Later” space now enjoys annual turnover of $14bn after just 5-years with around 30% of Australians now using either Z1P and APT but only 5% of Americans are at this point in time, hence the obvious path of growth.

Online shopping has accelerated through the COVID-19 pandemic and we believe it won’t be reversed when a vaccine is eventually found, subsequently we’ve seen 10-years of growth for the BNPL stocks in just 6-months but the cynics will obviously say that’s as good as it gets.

I've summarised some of the key takeaways and presented our views around the sector, or you can watch the recording of our conversation below.

https://youtu.be/bnO3WqHiJHI

Timing

In the next few weeks, we will see much of the sector report for the last quarter, the numbers should be excellent following strong retail sales. Also, to compound the optimism we are now entering the strongest quarter of the year as we all gear up for Christmas, in other words the next few months should be a purple patch for the sector. After the recent aggressive corrections we believe this is an ideal time from a risk reward perspective to be long the sector.

Current cycle tailwinds

1 – A number of large businesses are taking strategic stakes in the Australian BNPL sector such as Tencent’s (700 HK) 5% in APT and Westpac existing stake in Z1P, plus Amazon (AMZN US) own a bunch of warrants that will allow them to buy into the stock in the future. Consolidation is not yet on the table but the likes of Mastercard (MA US) and Visa (V US) can buy say Z1P without raising equity i.e. its probably just a matter of when, not if.

2 – The cost of capital is rapidly falling as the companies show excellent risk profiles for their customers plus of course it helps that central banks are cutting rates and stimulating the global economy.

Valuation

At this stage we believe it’s not about profits, it’s all about growth as the companies reinvest earnings. In the future we can compare the stocks to PYPL which trades on 22x gross profit but its way too early in our opinion.

Risks

Obviously the main question is how much is built into share price of these growth businesses and yet again it brings me back to our view on the market as a whole “buy weakness & sell strength” – remember the sector has been weak of late. We believe there are 3 main areas of risk:

1 – Competition: we saw recently the impact on the local stocks when PayPal (PYPL US) stated its intention to enter the fray but at this stage in our opinion their offering isn’t as attractive as the Australian competition. Undoubtedly competition will increase but as we mentioned earlier if the US takes up this new method of credit like Australia the sectors set to boom leaving plenty on the table for new players. Margins will also fall as competition increases but that may easily not unfold for 2 years, we need to watch the timeline carefully in this rapidly evolving space. However, as the sector slowly matures the winners of BNPL will have plenty of room to diversify into the likes of car & home loans from a large and happy customer base.

2 – Market: we believe the market itself is the largest risk to these high Beta stocks, if fund managers decide to sell off the high growth stocks BNPL will be included, the NASDAQ is the best barometer of growth valuations and at MM we are bullish at least short-term.

NB High Beta stocks usually move in an exaggerated manner both up and down to the index.

3 – Execution: Obviously high growth businesses need to implement their strategy carefully, investors like ourselves must watch this carefully.

Zip Co (Z1P) $6.17

Zip is our favourite major stock in the space, especially as its trading at a 65% discount to APT. The companies currently accumulating a whopping 6,500 new customers daily, I wish MM [Market Matters] was!

MM is bullish Z1P with an initial target 25-30% higher.

Zip (Z1P) Chart  [click on the link at the top for the full report including this chart]

Afterpay Ltd (APT) $79.99

APT is the sector heavyweight with a current market cap of almost $23bn. We like the stock around $80 but see a little more upside and value in Z1P.

MM is bullish APT looking for a test of $100.

Afterpay Ltd (APT) Chart   [click on the link at the top for the full report including this chart]

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[I do not hold any BNPL stocks, but that's more a function of my personal style and preferences - rather than specific judgements on any of the companies discussed above.  It's just not an area I choose to play in myself, for a few different reasons.]

01-Sep-2020:  From Marcus Padley's ("MarcusToday") EOD (end-of-day) email:

BNPL stocks woke up to a brave new world, one where a big gorilla is flexing its muscles, as Paypal announced it was entering the market sending the sector into a tail-spin. SZL dropped 14.7%, OPY down 7.2% and Z1P down 12.8%. The behemoth APT dropped 8.0%, leaving the All Tech Index down 2.2%.

27-August-2020:  https://www.commsec.com.au/market-news/reporting-season/aug-20/afterpay-ltd-apt-full-year-results-2020.html

That's Commsec's take on the APT FY20 full year result.

27-Aug-2020:  FY20 Results Announcement   and   FY20 Results Presentation

plus  Appendix 4E and FY20 Annual Report

• Total income* was up 97% to $519.2m From $264.1m (FY19)
• Loss before tax improved by 37% to ($26.8m) Loss From ($42.8m)
• Loss for the year improved by 48% to ($22.9m) From ($43.8m)
• Loss attributable to the ordinary equity holders of Afterpay Limited improved by 54% to ($19.8m) From ($42.9m)

* Total income consists of Afterpay income, Pay Now revenue and Other income.

The Group achieved total income of $519.2 million for the year ended 30 June 2020, up 97% on the prior year. Growth in total income was driven by an increase in customer and merchant demand for the Afterpay service across all of the markets in which Afterpay operates including the ANZ, US and UK regions. Total income growth was supported by an increase in the value of customer orders processed through the Afterpay platform (referred to as Underlying Sales) and an increase in the average fee paid by merchants for the use of the Afterpay service (referred to as the merchant margin or Afterpay Income Margin).

The Group delivered earnings before interest, tax, depreciation and amortisation (EBITDA) (excluding significant items) of $44.4 million for the year ended 30 June 2020, up $18.7 million on the prior year. Higher EBITDA (excluding significant items) was driven by an increase in gross profit which more than offset planned increased investment in employment and operating expenses. Investment was directed to scaling Afterpay’s global operations and delivering on the Group’s publicly stated target of exceeding $20 billion of Underlying Sales by the end of FY22.

The Group recorded a statutory loss before and after tax of $26.8 million and $22.9 million, respectively, for the year ended 30 June 2020. Statutory loss before tax includes foreign currency gains, share-based payment expenses, net losses on financial liabilities at fair value, share of loss of associate and one-off items which totalled $20.0 million in the year, which are not included in EBITDA (excluding significant items).

--- click on the links above for more ---

[I do not hold APT shares.]

Afterpay (APT) - Will join the MSCI Australian Index at the close of business Friday (29-May-2020).   Australia's second and third largest gold miners (after NCM), Evolution Mining (EVN) and Northern Star Resources (NST) also set to join the MSCI.

22-May-2020:  https://www.ausbiz.com.au/media/the-call-friday-22nd-may?videoId=1340

That's a link to "The Call" on Friday (22 May 2020) on the Ausbiz Business streaming service, which starts off with their "Stock of the Day", which was APT for this episode.  Jun Bei Liu from Tribeca and Adam Dawes from Shaw and Partners are wary of APT at current levels.  

13-May-2020:  https://www.livewiremarkets.com/wires/10-most-tipped-big-caps-fundies-deep-dives

Excerpt:

Afterpay: What the market is missing

Shane Fitzgerald at Monash Investors Limited rounded off the series with his wire, Afterpay: What the market is missing.

Afterpay's share price has had the most remarkable year as Shane's chart testifies, and no doubt caused a few skipped heartbeats as its share price fell 75% in a single month, wiping around $7 billion off its market cap. Yet, in the 2 months that followed, the stock nearly quintupled recovering all of its ground and more. 

As it has been for each of the last few years, Afterpay is the outlier in the list of the most tipped stocks. With an incredible +42% performance year-to-date, whilst the market is still down close to 20%, this one stock is the main reason the average performance of the 'most tipped stocks' looks so good.

Click on the link above, or here, to get Shane's full view on the stock. While many are clearly bullish on this stock, a few things he said the market is still under-appreciating about it are that:

"Firstly, the market continues to under-appreciate the increase in existing customer usage of the service over time, and what this will do to underlying sales growth and the associated benefits to operating leverage. The market also under-appreciates the implications of APT’s targeting of small size transactions of on average $150. It has implications for regulatory risk as mentioned above, but it also has implications for competition as a number of buy-now-pay-later players have commenced operations but are tending to target higher market segments". 

Incidentally, if you want to be notified next time someone publishes commentary about Afterpay on Livewire, scroll to the bottom of this wire and click on the stock code/s of interest [click on the link above first though to get to the wire].

--- click on link for more ---

01-May-2020 (7:23pm):  Afterpay welcomes Tencent as a substantial holder

Media Release, 1 May 2020.

AFTERPAY WELCOMES TENCENT AS A SUBSTANTIAL SHAREHOLDER

Afterpay Limited (Afterpay) is pleased to welcome Tencent Holdings Limited (Tencent, 00700.HK) as a substantial shareholder of Afterpay, confirmed by the lodgement of a notice of initial substantial holder on the Australian Securities Exchange on 1 May 2020.  

Tencent is a listed company on the Hong Kong Stock Exchange. The company provides Internet valueadded services, including digital entertainment, online advertising, and FinTech and cloud services to users. Its communications platforms include Weixin, WeChat and QQ. Its Weixin Pay service is the leading mobile payments platform in China, facilitating an average of over 1 billion commercial transactions per day.

Anthony Eisen and Nick Molnar, Co-founders of Afterpay commented:

“We feel very privileged to welcome Tencent as a substantial shareholder in our business.  Being able to attract a strategic investor of this calibre is extremely rewarding and is a testament to our team and the strength of our differentiated business model.

“Tencent’s investment provides us with the opportunity to learn from one of the world’s most successful digital platform businesses.  To be able to tap into Tencent’s vast experience and network is valuable, as is the potential to collaborate in areas such as technology, geographic expansion and future payment options on the Afterpay platform.  

“We remain focused on delivering value for our new and existing shareholders over the long term.”

James Mitchell, Chief Strategy Officer of Tencent, commented:

“We are pleased to become investors in Afterpay. Inside China we operate the leading digital payment service and a rapidly growing FinTech platform, and outside China we have actively invested in pioneering FinTech companies, providing us with unique insights into emerging FinTech services. Afterpay’s approach stands out to us not just for its attractive business model characteristics, but also because its service aligns so well with consumer trends we see developing globally in terms of Afterpay’s customer centric, interest free approach as well as its integrated retail presence and ability to add significant value for its merchant base. We look forward to a deep and long-term business partnership between Tencent and Afterpay.”

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27-Sep-2019:  Is Afterpay still a ‘buy’?

In that Livewiremarkets.com "wire" (article), that question is discussed by Dean Fergie, of Cyan Investment Management, Emanuel Datt, of Datt Capital and Michael Frazis, Frazis Capital Partners, and, as Livewire's Patrick Poke explains, "It's all about timeframes".

All three of those fundies have held APT in their portfolios, but do they now?  And what is their current view on the future of APT?  Click on the link above to find out.

The article starts with this paragraph:

"From a $165m micro-cap, to a $9.2b behemoth in just three and a half years, Afterpay’s rise to stardom has been nothing less than meteoric. For investors in the IPO, the returns could only be described as life-changing, with the share price going up by a multiple of 37 in that time. But success breeds doubters, and the obvious question on many investors’ lips is; does the stock still have room to run?"

APT is also discussed in this Livewire "Buy Hold Sell" segment with Arden Jennings, Co-Portfolio Manager at Ausbil Investment Management, and Robert Miller, Portfolio Manager at NAOS Asset Management, having opposite views on the stock.  NAOS have a "sell" on APT and Ausbil still rate APT as a "buy".  The transcript of the segment can be read here.

17-Feb-2020:  The link I'm about to give you is to a podcast of an interview / discussion between Michael Frazis (of Frazis Capital Partners) and Claude Walker (of EthicalEquities and "a rich life", also formerly the portfolio manager at Motley Fool Australia's "Hidden Gems" service) and they discuss APT from around the 14:30 mark through to around the 24:30 mark:  https://www.fraziscapitalpartners.com/podcast/episode/201bb0b7/episode-22-aussie-growth-stocks-for-the-next-decade-mike-and-claude-talk-polynovo-avita-audinate-pro-medicus-and-afterpay

Thanks to @Kaboom who has already posted this link (you can find it not too far below this in the newsfeed) in relation to Avita Medical (AVH) - who are discussed right after APT (from around the 24:30 mark).

Claude has never been onboard the APT runaway train (I'm in the same boat, or is that one-too-many mixed basic transport analogies?) but Michael Frazis certainly has been - since the beginning I believe.  Anyway, for those who are interested in Afterpay, it's probably worth listening to.

P.S.  Michael and Claude aren't brokers - and they don't work for broking firms, but they are certainly stock analysts, hence my choice of titles for this straw.