The Afterpay Touch Group Ltd (ASX: APT) share price declined over 5% today, making it one of the ASX 200’s worst performers.

Afterpay Touch is the owner of the popular “buy now, pay later” app. As of early 2019, Afterpay had over 3.5 million registered users worldwide, making it one of Australia’s true technology success stories.

Afterpay Share Price Drops 5% Today

The Afterpay share price was a disappointment for shareholders after attention was drawn to the ownership structure of Afterpay’s US subsidiary.

The Australian Financial Review ran a story today questioning how much of Afterpay Inc the ASX-listed Afterpay actually owns.

Investors are pinning a lot of hope on the growth of the US business, which is one of the main reasons why the Afterpay share price has run up so much. However, with Afterpay handing out equity of the US subsidiary to attract key individuals, ASX Afterpay investors won’t benefit quite as much as if it had owned 100% of the company.

The options that are being issued to attract the individuals are supposedly being given at steep discounts, which is an expensive exercise for shareholders, so hopefully the cost is worth the benefit that the individuals are bringing. The bigger Afterpay’s business becomes, the more expensive those option issues will look in hindsight.

AFR journalists Jonathan Shapiro and James Eyers outlined the options “have been issued at US19¢ (about 25¢) effectively value the US business at a maximum $40 million, based on US filings that show the share count cannot exceed 150 million.

That is significantly lower than the multi-billion-dollar valuation assigned to the US business by Australian share-market investors.

No wonder the Afterpay share price fell over 5% today in response to this analysis. Afterpay is clearly doing well in the US, but its shares aren’t worth quite as much if Afterpay only benefits from 90% of the US business (or less).

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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).

At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.