@Permabear
Nice to know other long term era are topping up and are thinking the same way.
I didn’t add more, will wait and double my top-up from yesterday if there is an additionally c20% drop (I think unlikely but you never know). I think the biggest risk for me at this stage is if I’ve missed something!!
Other risks that I’be thought about now are the added COGS and possibly increased friction at new customer acquisition for ID verification but having used apps like transferwise- if properly executed is minimal effort for end-user.
The current shareprice brings to mind George Soros’ idea of reflexivity. It is such a subtle thing. My interpretation of the logic of the market participants is the following in the recent price changes:
- price going up- thesis validation- keep buying
- short-attack- question the thesis- sell- price down
- pre-quarterly - seasonality of retail known but Afterpay could do what they did last year and still grow- free option best hold
- oh look they didn’t - option expired let’s actually value/ or let’s sell not and good as last year.
- price going down - what risks aren’t I seeing - ooh maybe it’s this/ that or the other
I must confess it wouldn’t have surprised me to see growth rather than a static result- and was guilty of many of these thoughts. I am evaluating risk more carefully now when the risk is LOWER than when the price was going up...at least in fairness to myself I am actively purchasing after re-evaluating my decisions.
Finally with some growth deceleration, valuation actually becomes a lot easier. There is less blue sky and much easier to come up with worst case scenarios...
I am very keen to have any tangible/ evidence based or even rationally argued near theses in this situation- but have not found any that have substantially altered my thesis.
Some downside scenario thought experiments below:
A) valuation risk
1)Patently absurd: no growth, current user base just monetized maximally. Off 2.4B assuming achievable net margin of (extremely unlikely) 1.0% and PE of 15 u get a valuation of about $1.67. Clearly this seems absurd.
2) Growth drops off dramatically to 30%pa. Using trailing multiples off 2.4B revenue (current run rate). Net margin of 1% and PE of 30 gives $3.35. I think this is very conservative and unlikely.
3) Growth drops off dramatically to 30% using forward multiples off 2.4B revenue. Net margin 1.5% and PE of 30 gives $6.50 (again seems conservative to me in current market). This valuation seems to be a bear market valuation/ strong relative value in current market
4) growth drops to 50% using forward multiples, 1.5%NM and PE of 30 gives $7.50...possibly the market today not of January!!!
B)Regulatory risk: Afterpay currently have the law on their side- ie change will need to be active. Already large and captured user base- a la Ubers: Airbnb/ facebooks/ googles—> there will be plenty of warning before something changes- these articles may be the start but will most likely be >6 months away. Should be able to get out later and should not affect valuation significantly for now (calculated risk- would change if information changes)...
C) Execution risk: complete failure in the US. Again no information- not worth making decision on currently...
Is there anything I am missing anyone that hasn’t been discussed before? Any better valuation methodology for today’s market (focusing on relative valuation compared to peers rather than absolute valuation against mature businesses)?
