The Afterpay Ltd (ASX: APT) share price is rising again, is it time to buy shares?
Afterpay’s resurgence
After PayPal’s announcement that it’s launching a service called “Pay in 4”, the Afterpay share price fell just over 20% over the two weeks following the news.
PayPal says Pay in 4 is an interest-free instalment solution at no extra cost. It means consumers can pay for things over four payments. Consumers can pay for items costing in a range of $30 to $600.
However, since the mid-September low, Afterpay shares have climbed 12%.
There hasn’t been much news since the release of the FY20 result. Of course, that report showed a number of impressive metrics including 112% growth of Afterpay’s underlying sales to $11.1 billion, 116% growth of active customers to 9.9 million and 72% growth of active merchants to 55,400. It led to total income just about doubling to $519.2 million and underlying EBITDA (click here to learn what EBITDA means) rising 73% to $44.4 million.
There have been two other important pieces of news recently. Afterpay is changing to a new chief financial officer (CFO), it will be Rebecca Lowde. It also made an acquisition in Europe called Pagantis which it hopes will accelerate growth in Europe.
Pagantis is only a small business with 1,400 active merchants and 150,000 active customers. However, the addressable ecommerce market in the EU exceeds €300 billion. Pagantis currently has operations in Spain, France and Italy with regulatory approval to operate in Portugal.
Are Afterpay shares worth buying today?
I’ve not been sure whether Afterpay is worth buying at a share price of $30, $40, $50, $60 or $70. Now it’s at $80. It’s still not generating a net profit after tax, which seems years away.
I suppose the sector is in land-grab phase at the moment, so I can see why Afterpay wants to capture as much global market share as possible. It could make a lot of money in the future if its transaction margins stay consistent. But that’s a big question mark for the future.
Will merchants be happy to keep paying a high margin if there are other options like PayPal which are much cheaper? What about if regulators say that merchants can (and should?) charge customers for the Afterpay fees, which is currently disadvantaging people who don’t use a buy now, pay later option.
Afterpay has done extraordinarily well at growing into the business it has. I’m just not sure what a good price for it is, so I’d rather leave it to other investors. And I think the next month (or more) could be volatile with the upcoming American election. I prefer profitable ASX growth shares like Pushpay Holdings Ltd (ASX: PPH) which seems to have much better operating leverage and doesn’t rely on debt funding.
