Afterpay share price: where next as active users hit 6.1 million

As user growth and underlying sales continue to soar, we take a look at some of the most important things we learnt from Afterpay’s latest business update.

Afterpay share price drops on latest update

For the 4 month period ending October 31, Afterpay (ASX: APT) reported that all of its key operational metrics had risen significantly.

Specifically, underlying sales (GMV) climbed to $2.7 billion (+110% YoY), active customers hit a record 6.1 million (+137% YoY) and active merchants offering Afterpay's payment solutions reached 39,450 (+96% YoY).

Still, the market proved volatile and unsatisfied; with Afterpay’s share price climbing as much as 8% at the open before sharply retracing soon after. By 11:20 AEST, the Afterpay share price was down 2.88% – to $28.35 per share.

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The parabolic value question

Speaking to Afterpay’s (ASX: APT) parabolic user growth, the company noted that:

'On average, Afterpay onboarded over 15,000 new customers per day in October, representing its largest customer acquisition month on record and accelerating from approximately 12,500 customers per day in July.'

Quarter-over-quarter, active customers are now up 32%.

Yet maybe more importantly than simply adding more customers to the Afterpay network, was the increased and now quantified value these customers have been adding over-time.

'In Australia and New Zealand, customers who joined Afterpay during FY15-17 are now purchasing, on average, approximately 22x per year. Newer cohorts are following a similar upward trend, with FY18 and FY19 cohorts purchasing, on average, 14x and 7x per year respectively.'

To further illustrate the importance of these purchasing increases over time, Afterpay was also keen to point out that 95% of its underlying sales were made from returning customers.

Where next: new partnerships emerge

Not to be outdone by Zip’s recent Amazon deal, Afterpay (ASX: APT) announced that it had struck an agreement with eBay that will see its payment solutions made available on eBay Australia's marketplace.

As the company noted, this:

'Parternship represents Afterpay Australia's largest online arrangement to date which allows both companies to align on a mutual approach of adding value to merchants by helping them access new and repeat customers.'

Yet the ‘partnerships’ don’t end with eBay Australia, with Afterpay today also announcing a $200 million private placement with the technology-focused Coatue Management. A central part of this placement, as Afterpay flagged, involves the two companies having established a 'non-binding' term sheet outlining a strategic partnership.

'Coatue will leverage its data science experience to support Afterpay in its development of retail data analytics and future data driven products.'

Coatue Management will acquire new Afterpay shares at a price point of $28.50 per share.

The placement is expected to be completed later this month.

For reference and according to the ASX, Afterpay (ASX: APT) currently has 252.74 million shares on issue.

These two partnerships look promising and should not only potentially help grow the company's reach further (in the eBay case) but shore up Afterpay's financial position (in the Coatue case) as it pursues an aggressive international growth agenda.

Even with all this considered, today's share price reaction suggests that the market doesn't fully know what to make of Afterpay's latest business update. And indeed, given Afterpay's volatile price history, where the stock heads in the short-term is anyone's guess.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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