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Afterpay share price: what’s the outlook following Q3 business update?

We examine Afterpay’s latest business update.

The key takeaway from Afterpay’s (APT) latest business update seemed to be that growth remains strong and risks manageable.

Illustrating that point, year-to-date, Afterpay's underlying sales (GMV) have now hit a staggering $7.3 billion – representing a growth rate of 105% – on a year-over-year (YoY) basis.

On a more granular level, Australia remained Afterpay’s most significant market in Q3, with year-to-date underlying sales coming in at $4.6 billion (+50% YoY); trailed closely by the US at $2.4 billion (+354% YoY); and finished with the UK, at $0.3 billion.

The company positively noted that approximately 88% of its sales were made online during March.

The current outlook

Of course, as many were expecting, the company also used today’s business update to report that:

'Growth began to moderate from mid-March 2020 onwards as government-enforced COVID-19 related retail trading restrictions commenced.'

Moderating growth aside, Afterpay's losses look to remain manageable.

For the month of March, the Group reported that gross losses came in at ~1.0% – a figure that was in line with H1 FY20’s gross losses. That is to say, between pre and post-Covid-19, not much has changed, thus far. Adding to that, management commented that:

'Pre-emptive adjustments to risk settings had a positive impact on loss performance lead indicators in the second half of March and early April.'

Though the company said growth had moderated off the back of government restrictions, Afterpay’s mission to empower people to buy the products they want – in just four easy instalments – remains as clear as ever.

People identify with that mission, too – it is more than a mere corporate slogan at this point. Afterpay is a lifestyle. Its brand: a tour de force. Its presence, global.

Speaking to that last point, the company’s US customer-base has now eclipsed its Australian one. As of 31 March 2020 – Afterpay’s US operations was made up of 4.4 million loyal customers and an Instagram following of ~178,000.

Afterpay Australia’s active customer-count currently stands at 3.2 million, while the UK at 0.8 million.

The company may be continuing to grow, but APT’s management stressed that this not a Silicon Valley, growth at all costs type situation. Rather, maintaining margins, ‘limiting losses’ and ensuring that the company’s balance sheet is protected in these uncertain times, was also a key priority.

Afterpay share price: a bullish game

Bringing the focus back to losses – while Afterpay’s March gross losses were consistent with prior reporting periods – in recent times, investors have turned their attention to worrying about just how high these losses could go.

For example, the company said that there were 'favourable trends for orders placed after Mid-March' but also flagged there 'was an increase in hardship claims in mid-March.'

And even management noted that while there has 'yet' to be a material deterioration in loss performance indicators, it also said that it’s still early day.

Should the Covid-19 situation worsen will we see another increase in hardship claims? Will we see gross losses move above the approximate 1.0% mark?

Only time will tell.

Even so, investors had no time for such questions this morning: in the first 30-minutes of trade, the Afterpay share price was bid as much as 17% higher – to $25.890 per share.

As of 10:56 AEDT, Afterpay had pulled back a shade, trading at $24.36 per share.

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