The Afterpay Ltd (ASX:APT) share price is currently in a trading halt after the business announced its FY21 half-year result and a capital raising.
Afterpay’s FY21 half-year result
Afterpay reported that its underlying sales grew by 106% to $9.8 billion in the first half of FY21. This drove Afterpay income higher by 108% to $374.2 million.
The company showed that its customer and merchant base continue to rise. The active customers number increased by 80% to 13.1 million. Compared to the first quarter of FY21, US and UK customer numbers rose by 20% and 23% respectively. Over 91% of underlying sales in this result came from repeat customers.
Active merchants rose by 73% to 74,700.
Some of Afterpay’s profitability metrics showed a pleasing improvement. The gross loss as a percentage of total underlying sales improved from 1% to 0.7%. The net transaction loss as a percentage of total underlying sales was flat at 0.5%.
Afterpay’s net transaction margin increased by 110% to $213.9 million, with the net transaction margin as a percentage of underlying sales improving from 2.1% to 2.2%.
The company reported that its underlying EBITDA grew by 521% to $47.9 million.
It finished the period with $1.7 billion of liquidity and growth capacity. Afterpay said this could fund several years of self-sustaining high growth in underlying sales.
The company said that Stripe merchants in the US, Australia and New Zealand can now integrate Afterpay and will be available to merchants in the UK and Canada soon. Stripe is also extending the payment service to large e-commerce platforms, with Squarespace being the first.
Growth plans
The completion of the Pagantis acquisition will finalise after being given regulatory approval by the Bank of Spain, which is expected in March 2021. Afterpay is preparing to launch into Spain, France and Italy, with over a pipeline of over $1 billion of global merchants in the process of contracting.
It has also established a base in Singapore after the acquisition of EmpatKali to drive the development of its potential expansion into South East Asia.
Capital raising
It announced it has entered into an agreement with Matrix where Matrix will waive 35% of the underlying interest it holds in Afterpay US under the Matrix convertible notes for approximately $373 million in cash.
This transaction implies an acquisition price that values Afterpay US at 28% of Afterpay’s total market capitalisation. Afterpay says that it is accretive to shareholders across gross merchandise volume (GMV), revenue and customer multiples.
Afterpay is launching an offering of $1.25 billion of unsecured zero coupon convertible notes due 2026 to upsize the offering by up to $250 million.
This will increase Afterpay’s ownership of Afterpay US from 80% today to up to 93%, with a path to reach up to 100%.
Summary thoughts
This was another strong six months for Afterpay, with growth being delivered across its various markets. The bigger it gets, the more it cements itself in the minds of merchants and customers alike.
It makes sense to own more of Afterpay US, though it is seemingly going to have to pay a high price for it.
I’m not sure what share price makes sense for Afterpay. Is it on its way to becoming as big as Visa and MasterCard? Or are the expectations of profitability and growth far too high? Only time will tell, but I’m not looking to buy at this price.
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