Why Citibank slashed their Afterpay price target by 50%

In typical Afterpay style, the buy now pay later leader saw its share price open some 33.8% higher today.

The ten bagger opportunity that was

Late last year, when UBS revealed its Sell rating and $17.25 price target on Afterpay (ASX: APT), many bullish investors surely had a good laugh.

At the time, Afterpay was after all, the tech darling that could do no wrong. Bolstered by a two-sided network effect of willing merchants and eager users, the young fintech was ratcheting up growth quarter after quarter.

Its share price benefitted too: between its listing in July 2017 and up until February 2020, the Afterpay share price rose in excess of 1,100%.

Afterpay share price: a developing thesis

The story of course, it somewhat different right now. Though for the sake of consistency at least, the stock has continued to trade in a volatile fashion, with the Afterpay share price opening 33.8% higher today.

Brokers however, may be becoming less convinced, as the lustre of a company leveraged heavily to discretionary spending and a potentially severely impacted demographic, wears thin.

Indeed, as Citibank wrote this week:

‘We expect uncertainty regarding the extent of decline in consumer discretionary spending (and timing of the recovery) and whether Afterpay can navigate through a credit cycle to be overhangs for the stock over the next 3-6 month.’

Such ‘overhangs’ have seen Citibank aggressively cut their price target on Afterpay from $42.20 to $21.10 per share. Given the near term earnings risk, the investment bank’s rating has also slightly shifted, from Buy to Buy/High risk.

With such steep share price swings apparently on the cards, high risk indeed!

Ultimately, as the coronavirus crisis seeps further into Australia’s economy (and other key Afterpay markets), the investment bank posits that both APT's merchant sales and net transaction margins will be likely come under pressure.

Positively at least, according to Citi:

‘Unlike other unsecured consumer credit products, the key advantage to Afterpay is the low duration (<30 days) and that Afterpay dynamically change its credit variables on a per order basis. These characteristics should allow Afterpay to identify credit issues early and control losses.’

And for those wondering if Afterpay will be able to weather the current economic uncertainty we are now facing, according to Citibank the answer is yes. Not only is Afterpay’s capital position strong, but a stress test conducted by the investment bank suggests that APT is 'able to withstand a material increase in customer losses and/or reduction in GMV.’

Watch this space.

How to trade Afterpay

Are you bullish or bearish on Afterpay? Trade accordingly. You can use CFDs to trade Afterpay and other growth stocks – LONG or SHORT through IG’s world-class trading platform now.

For example, to buy (long) or sell (short) Afterpay, follow these easy steps:

  • Create an IG Trading Account or log in to your existing account
  • Enter 'Afterpay' or 'APT' in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.