Afterpay shares: top broker initiates coverage with a $38 price target

Macquarie Wealth Management has initiated coverage on Afterpay (ASX: APT) with an OUTPERFORM rating and a significant $38 per share price target.

It seems like a lifetime ago that Afterpay was a sub-$10 stock.

The fast-moving buy now pay later (BNPL) company currently trades at $28.78 per share – some ways off its 52-week high, but still 139% ahead of where it did in January.

Recent news coverage concerning the company’s 2018 US Equity Plan may have rattled investors, if only a little bit.

Nevertheless, some of Australia’s top brokers don’t seem too worried, which save for a bearish UBS analysts – looks to represent a mostly bullish consensus.

Illustrative of this, yesterday Macquarie Wealth Management initiated coverage on Afterpay (ASX: APT) – hitting the fast-growing (BNPL) company with an OUTPERFORM rating and a 12-month share price target of $38.00.

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Afterpay share price: the growth story grows

Though Afterpay is already a dominant player in Australia’s BNPL space, it is North America that represents the true growth opportunity.

Here, Macquarie points out that APT is already emerging as a leading player in North America’s BNPL space, a market that the investment bank estimates to be 18-20x the size of Australia’s. That fact, as well as a number of other growth levers, including: in-store penetration, category expasion and a push into new markets all mean that Afterpay’s runway for growth remains high.

In line with this, Macquarie expects Afterpay to hit $26bn in underlying sales (GMV) by FY22 – some $4bn ahead of Afterpay’s own GMV estimates.

Longer-term, Afterpay could achieve underlying sales of $70bn, thinks Macquarie.

Yet as with any good piece of stock analysis, the investment bank is quick to highlight the risks faced by Afterpay – a company operating in a fast-evolving sector, where barriers to entry are low and well-capitalised players may soon make aggressive moves to capture market share. VISA Next represents one such well-capitalised player with BNPL ambitions.

On the other hand, though barriers to entry are low, Macquarie posits that the consumer side of Afterpay's business model does have a number of areas which represent points of differentiation. These include: branding, value fit and availability of APT's payment solutions.

On the merchant side, access to Afterpay’s expansive and engaged customer base, an easy-to use product and global reach all rank as key differentiators, notes Macquarie.

And maybe this is the most important part of the Afterpay equation. As Macquarie describes it: Afterpay benefits from a ‘two-sided’ network effect.

That is, as more retailers offer Afterpay, the more valuable the product becomes for users. With this increased value for users, the value for retailers grows in-step. Indeed, the availability of APT often has the effect of stimulating top-line growth for merchants.

Afterpay exacerbates this growth equation with highly-targeted marketing and strong partnerships, among other strategies.


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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