The Afterpay Touch Group Ltd (ASX: APT) share price is down around 6% after it suffered some criticism from a broker.
Afterpay Touch is the owner of the popular “buy now, pay later” app. As of mid 2019, Afterpay had over 5.2 million registered users worldwide, making it one of Australia’s true technology success stories.
What’s Going On With Afterpay Shares?
The Afterpay share price is suffering after investment bank UBS issued some scathing coverage of the buy now, pay later leader.
UBS set a price target of $17.25, which is what a broker thinks the share price will trade at in 12 months times. That means UBS thinks the share price is going to halve over the next year.
According to reporting by the Australian Financial Review, UBS thinks that growing regulatory risks could harm the company’s growth prospects.
One of the issues that UBS pointed to is that Afterpay doesn’t allow merchants to pass on the costs of the transaction to customers. But this apparently is a problem because it “arguably creates a distortion which could significantly influence consumers’ choice of payment method” by shifting the cost of financing from consumers to merchants.
If consumers are then presented with the actual cost of buying with Afterpay, they might choose different buy now, pay later services and merchants could charge higher prices.
UBS also pointed to the fact that many investors are pricing in huge US growth, but there’s higher interchange fees and higher credit card rewards which could mean less take up from traditional credit card users. And US competitors could better challenge Afterpay because it hasn’t achieve national expansion and leadership there (yet).
Is The Afterpay Share Price A Buy?
It’s really hard to say what’s going to happen next with Afterpay. There are potentially huge rewards – the retail markets in Australia and the US are massive. But there are more competitors, higher regulatory risks and a question about how much more sustainable growth Afterpay can create. How profitable will it actually be in a year or two?
It’s not the investment I want to make. For growth I’d rather want to buy the shares outlined in the free report below.
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