Afterpay shares: can underlying sales hit $34 billion in FY22?

We take a brief look at Afterpay's share price history, with a central focus on examining a bullish piece of analysis from Watermark Funds Management.

Afterpay share price in focus

Afterpay Holdings Limited (ASX: APT), may just represent one of the most successful listings on the ASX in recent memory.

By market capitalisation at least, it’s now the 59th largest public company in Australia, yet it listed just 26 months ago.

Indeed, what started as a relatively small, Australian-focused tech operation has morphed into a global phenomenon.

In the heavy shadows of Google and Uber, Afterpay too has seen its services become a verb.

‘Just Afterpay it,’ is the expression among users.

The mid-innings ambition at a glance

Afterpay (ASX: APT) has set and exceeded many of the goals it has made in the past. Investors and analysts have responded accordingly, bidding Afterpay’s share price up following most major releases.

To make a point, the company has seen its stock rise a staggering 182% since the beginning of the year. The ASX 200 by comparison has risen just 19%.

Longer-term, and since listing, Afterpay Holdings Limited's share price has reached ten-bagger status: rising 1,048% since June 2017.

Many have questioned whether this run-up in price is at all justified, or whether – as was the case with ‘crypto mania’ – it is all just a matter of hype or FOMO (fear of missing out).

JP Morgan, for example, pointed out that Afterpay trades at a stratospheric price-to-earnings ratio in a recent report. Though, valuing a relatively early stage tech company by an earnings multiple may potentially be missing the point.

The growth story rages on

Yet when Afterpay Holdings Limited was spruiking its growth story to institutional investors earlier this year, it looks as if valuation proved to be little concern.

After all, the goal it touted was impressive by any standard: that is, to achieve underlying sales of A$20bn. Underlying sales, not to be confused with revenue, represents the sales processed through the Afterpay platform.

By comparison, Afterpay clocked-up A$5.2bn in underlying sales during FY19.

This estimate of course was made on the assumption of robust international growth, as the young fintech pointed out in its latest investor presentation, noting that ‘Afterpay is targeting $20b ++ in underlying sales (GMV) per annum by FY2022.’

Investors were head over heels for such a target: Afterpay raised A$317.2m, with the intention to use the funds to pursue its mid-term plan aggressively.

The follow-up was one of consolidation, as the young company has sought to further corporatize itself, as it tilts its global ambitions upwards.

The consequence of this was a story as old as business itself: Nicholas Molnar, genius co-founder of Afterpay was displaced from the top-spot, replaced by the more experienced Anthony Eisen.

Mr Molnar has been charged with the role of Global Chief Revenue Officer, though his LinkedIn profile still describes his role as Co-founder and CEO of Afterpay.

Afterpay: $0 to $34,000,000,000?

This brings us to the central question posed by the headline of this piece: can Afterpay hit A$34bn in underlying sales (GTV or GMV, as Afterpay describes it) by FY22?

Afterpay itself is aiming for a more modest, though still impressive figure of A$20bn in underlying sales by the 2022 financial year.

Yet it is Harry Dudley, from Watermark Funds Management, that thinks such an estimate is conservative.

In a piece published on Livewire markets earlier this week, and citing the behavioural trends of Afterpay Australia’s mostly millennial customer base, Mr Dudley pointed out that based on:

‘Afterpay’s mature Australian cohorts who are now transacting using Afterpay more than 20x a year – a number which is still growing. We have extrapolated the behaviour of earlier customers across the whole portfolio.’

Drawing on these calculations, Watermark Funds Management believe that:

‘Afterpay can beat their 2022 sales target of $20bn GTV by at least 70% on a conservative set of assumptions and has the potential to even double guidance in a favourable US/UK scenario.’

Put another way, and as is the highlight of the Livewire article:

‘We estimate $34bn GTV in FY22.’

Mind you, even when considering this bullishness, Mr Dudley points out that the GTV ‘consensus sits at around $24bn in FY22’ – some A$4bn ahead of Afterpay’s own target.

Final thoughts

Ultimately, Watermark Funds Management’s predictions – as well as the general consensus speaks to the growing confidence the market seems to have in Afterpay’s ability to deliver on its promises.

For now, at least, the Afterpay growth story is alive and well.

As of 14:31 AEST, Afterpay Holdings Limited’s share price was down modestly, dropping 1.42%, as tech jitters rippled through equity markets.


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