Why one top investment bank thinks Afterpay is worth $120

Morgan Stanley raises their price target on Afterpay as the Christmas season looms.

In the lead-up to Christmas, Morgan Stanley last Friday bumped up their price target on Afterpay (APT) from $115.00 per share to $120.00 per share.

The crux of the investment bank’s thesis: The Christmas season, historically a strong period for BNPL companies and Afterpay – is set to contribute to a strong second quarter performance, building on APT’s already strong first quarter results.

Beyond that, Morgan Stanley made two broad points, including arguing that:

‘We think the December quarter should see a seasonal surge in sales and customer activity with key shopping periods.’

Moreover, and looking at one of the company’s key metrics – repeat usage – it was noted that:

‘US app downloads are growing and we think the Australian business is seeing increased repeat usage.’

As a result of these raised expectations across those core metrics, MS bumped up their full-year (FY21) revenue estimates by 6%, a key driver of the investment bank’s price target upgrade.

Elsewhere, Afterpay’s recently announced partnerships with Wix and Stripe were flagged as key positives, while it was the Afterpay-Westpac partnership that Morgan Stanley analysts really honed in on, saying:

‘The APT and WBC partnership could reduce processing costs which take 110 bp off the net transaction margin, implying margin upside or a larger addressable market if processing costs can be optimised. It will also give APT richer and more holistic customer data.’

We dissect the implications of this partnership in more depth here.

Afterpay share price declines as trade resumes

Though the ASX suspended trade on Monday, November 18, as a result of data issues, for the thirty or so minutes that the ASX was open, APT and other BNPL stocks were bid lower off the back of news that ASIC was set to roll-out a number of regulatory changes in 2021.

The Afterpay (APT) share price continued to decline when trade resumed on Tuesday, November 17, with the stock falling over 5%, to finish out the session at $95.93 per share. Sezzle and Zip also finished out the session lower.

In other news, Afterpay held its Annual General Meeting on Tuesday, announcing a leadership shakeup in the process – appointing Anthony Eisen and Nick Molnar as Co-CEOs.

This decision, said Afterpay's Chair Elana Rubin, 'positions Afterpay strongly for the future and reflects our ongoing evolution globally.'

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