AUSTRAC has sent the Afterpay Ltd (ASX: APT) share price higher after the audit into the buy now, pay later business.
What was announced today?
Afterpay said that AUSTRAC has given a final notification after considering the final audit report which was done by independent auditor Neil Jeans looking into the company’s compliance with the anti-money laundering and counter-terrorism financing (AML/CTF).
AUSTRAC has looked at the report and Afterpay’s response to the findings and decided it will not be taking any further regulatory action.
The regulator noted that Afterpay has uplifted its AML/CTF compliance framework and financial crime function, and satisfactorily completed all required remediation activity.
Afterpay Chair Elana Rubin said: “We are pleased to have received AUSTRAC’s decision following the external audit as it provides the company and its stakeholders with certainty and acknowledges the work the company has undertaken to strengthen its AML/CTF compliance.
“The external audit provided Afterpay with the opportunity to better understand our obligations and to improve the way we manage our AML/CTF risks. We will use these learnings and our ongoing engagement with AUSTRAC to continue enhancing our AML/CTF framework as the business continues to grow.”
Is Afterpay’s growth now unstoppable?
The market is certainly giving Afterpay a share price that indicates huge success. It’s up 4% at the time of writing and getting close to $100.
Afterpay has done remarkably well to have the customer base and global reach that it does. The management should be applauded for that.
The company is doing great, I’m just not sure about its valuation and future profitability. A business doesn’t necessarily need to make profit if it’s growing quickly and can re-invest whilst it’s building towards profitability. Just look at something like Xero Limited (ASX: XRO). But it’s not a buy at any price just because it’s growing fast. You wouldn’t put a price of $1 trillion or $100 billion on Afterpay, so at some point the market capitalisation has to be supported by somewhat realistic assumptions.
But I’m not sure the assumptions for Afterpay make complete sense. Can Afterpay continue to earn the same margins in the future? The RBA is thinking about BNPL fees. Should merchants be able to charge customers for the Afterpay fees (which usually amount to a mid-single digit percentage of the sale)? Will future competition from shares like Zip Co Ltd (ASX: Z1P) cause margins to lessen when the industry isn’t in a fast-growth phase?
I don’t necessarily believe that everything is going to go against Afterpay. But there are risks and potential problems in the future that may make this share price seem too optimistic. But the price keeps going up and I’ve missed out on a lot of gains, so I’ve been wrong so far to avoid it.
There are other ASX growth shares I prefer more such as Pushpay Holdings Ltd (ASX: PPH) which are already profitable but are still forecasting strong growth over the coming years.
