Is the Afterpay Ltd (ASX: APT) share price a big opportunity after falling by almost a quarter in just three weeks?
The slide
The Afterpay share price started falling before the release of the FY21 half-year result, but the report didn’t stop the decline of Afterpay shares. It actually dropped a bit more when investors learned what was in the report, as well as the news of the plan to buy back some of Afterpay US which it doesn’t own.
In the HY21 report, Afterpay revealed that its underlying sales jumped by 106% to $9.8 billion. In constant currency terms, the underlying sales would have been $10.1 billion. This led to Afterpay income jumping by 108% to $374.2 million.
The number of active merchants grew by 80% to 13.1 million and active merchants climbed 73% to 74,700.
Afterpay’s net transaction margin increased by 110% to $213.9 million, with the net transaction margin as a percentage of underlying sales increasing from 2.1% to 2.2%.
The EBITDA (EBITDA explained), excluding significant items, surged by 521% to $47.9 million.
In terms of funding the increased Afterpay US ownership, it’s doing a $1.5 billion unsecured a zero coupon convertible notes due in 2026 to fund the deal. The notes are convertible into fully paid ordinary shares in Afterpay with an initial conversion price of $194.82 per share, which was a conversion premium of 45%.
It was also announced the co-CEOs Anthony Eisen and Nick Molnar sold 450,000 shares each at $134.36 per share. That appears to amount to $60 million each.
Is the Afterpay share price a big opportunity?
Normally, a fall of 25% for a business that’s doubling revenue every result may appear to be an interesting thought. But how much should a business, not making any profit, be worth? $38 billion, which is what it’s valued at now? When there isn’t much thought given to profit, it’s fairly easy to justify a higher and higher share price. But I think there could be difficulties in the future when the land grab has finished and buy now pay later operators try to win market share by lowering fees.
Higher interest rates could also make things tricky for both the valuation and Afterpay’s margin considering interest is a major cost for the buy now, pay later business.
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