The Afterpay Ltd (ASX: APT) share price went up 9.75% today along with many others in the buy now, pay later industry.
There weren’t any groundbreaking announcements by Afterpay today. Nothing from Zip Co Ltd (ASX: Z1P), though its share price rose 5%. Afterpay wasn’t sent higher by Splitit Ltd (ASX: SPT) and Sezzle Inc (ASX: SZL), though they went up by 1.8% and 7.5% respectively.
No, it seems the huge rise in the buy now, pay later industry here on the ASX was thanks to Affirm’s share price essentially doubling on its first day after hitting the stock exchange in the US. The share price finished at just over $97, up from the IPO price of $49 each.
Affirm operates just in the same way that other buy now, pay later operators work – it offers consumers a way to buy things without any fees or interest. The company actually says that since its founding in 2012, it hasn’t charged any late fees for missed payment.
At 30 September 2020, Affirm had over 6.2 million consumers and more than 6,500 merchants. In the year to 30 June 2020, it made $509.5 million of revenue with a net loss of $112.6 million.
This huge first day puts Affirm’s market cap at around $12 billion.
It seems that investors are getting excited by how much the ASX’s BNPL industry should be worth when compared to Affirm’s client base, revenue and market cap.
What to make of this
It’s hard to sit on the outside of owning Afterpay shares and see it continually rise. The Afterpay share price has gone up more than 10 times compared to the bottom of the March 2020 crash.
Is Afterpay actually worth more than $30 billion? How much profit is it going to generate over the next five years or ten years? Will it really succeed and maintain high margins when there’s so much competition out there in the world? I’m not sure when Afterpay’s profit will justify the price, but I’m not sure what would knock down Afterpay shares either.
I wouldn’t want to buy shares today, particularly when another competitor’s IPO apparently makes the Afterpay business worth 10% more in investors’ minds. But I wouldn’t want to short Afterpay shares either.