Coppo Report on Thursday
Afterpay{13.87 1.11 8.70%} BUY
- stock was strong yesterday +10% but then closed down, despite what was great news across the board. This was a company that just reported that the Afterpay app, was the most downloaded app in the US on Black Friday beating the likes of Amazon & every other US retailer – that is truly extraordinary for a business not a year old (they have been in the US for just 6 months !) !
- On 8 November we were made aware that Afterpay U.S. had passed 300,000 customers. As of today, just 3 weeks later - it is greater than 450,000. Laf in his last report estimated APT was adding around 80,000 a month in the U.S. it is now around 50% higher than our previous estimate at around 140,000.
- Given first mover advantage in the US is crucial in the payment space to have more than 450,000 customers in six months -after picking up 19,000 on Black Friday – suggests investors would be celebrating Australia may have an unearthed a global Fin tech winner.
- The ASIC review came out in a 55 page report & said it – at this stage - would not see it require the companies to act like credit card or loan issuers. ASIC did not recommend that the sector be brought under the National Credit Act.
- But then the stock was smacked from +10% to close down -2%
- Why ?- because a hedge fund , helped by a pliant press , ploughing through the ASIC report which gave the Buy Now Pay Later sector – of which Afterpay is but one member – a regulatory thumbs albeit with caveats – managed to sew together enough shreds of evidence to suggest APT was little more than a lender of last resort.
- All is fair in love and shorting and 10% of the register is punting on a collapse no-one expected the bears to focus on - the acceleration in the US business but you’d have to think that straws are being clutched here.
- Having failed miserably (ok it worked for a few months) with an earlier scare campaign that Afterpay was being used by 16 year olds to buy grog (but had it delivered to an adults business & signed for by an adult that was left out at the time) , it sought to paint a picture where APT was the lender of last resort and found it had more late payers as a percentage of users than others in the sector.
- As my college in the UK Phil Beard said - It focused on 4 examples (off a client base of more than 2 million ) – sorry just to say that again .. 4 examples out of 2m users … who had “used “ Afterpay having exhausted every other lender. Now the sums were important to the people involved they do did not reach $5000 in total and there was no sign their personal situation was worsening. There was also a table which showed APT had the last percentage of last resort loans.
- In an Australian environment where credit restrictions are tightening ASIC could get easy plaudits from the press by hardening their stance and yet has chosen not to.
- It understands in a world of ballooning credit it is in the interest of groups like Afterpay for clients to repay on time - the complete opposite of the credit card model.
- The rapid take up of Afterpay in the vast majority of cases indicates it meets a need for both consumers and retailers (certainly when one considers the usurious late payment charges of Visa) and the regulator feels that given its relative infancy the fact the industry wants to feel its way.
- Afterpay charges 25% late fees BUT the maximum late fee is capped at just $68 & what is owning never increases – the account is then suspended if they miss just 1 payment – unlike credit cards where the interest & loan just keep rising into infinity.
- Also Afterpay REJECT 30% of all transactions that they get – so they are already weeding out as many as they can before they even get through.
- The fact Australians. Kiwis and now Americans seem to love the concept and daylight is being opened to potential competitors which at current growth rates might not be narrowed.
- UK is coming on line and already the concept is being trialed by the some of the fast fashion groups ….
- With gross margins and client retention rates healthy … Laf (just below) upgrade the target price but the number the potential owners will be watching are those coming out of the US.
- The fact that the hedge funds contacted all the press about all the negatives – could not tear down the success in the US – and in fact did not even mention it.
- This company is growing at a rapid rate, it’s going to be volatile in the share price - as any company in a massive growth phase would be – the valuations are always going to be diverse depending on what you use to value it. Which means there will always be those trying to tear it down (usually you’ll find its those short) – but like any good coy if they succeed & deliver the share price will look after itself. When they get bigger the shorts will need something new & maybe then its recession risks & how they manage bad debts ..
- Who knows they will find something – but yesterday’s full-scale attack – though the press & beyond – worked very well - for 1 day -- but as calmer heads & those who read the 55 page ASIC report last night (its easy reading) realized it was overall pretty good for Afterpay & those “concerns” looked way over-baked in the “big picture”…
- Today the share price got it right after the mkt spent more time looking at what was said yesterday by ASIC & at their AGM.
- So in 5 days the stock has rallied +30% off its lows
- It's important to realize that the shorts have increased their "bet" against Afterpay by 150% ie by +4.31% from 2.86% on 7th Sept to 7.17% now - so they are heavily invested in trying to drive the share price down.
- I still see $23 as a 1st stop in 2019.
How the shorts have been selling as hard as they could & increasing their short positions over the last 2.5 months, up until 4 days ago they were doing very well..
This chart shows the momentum in the US - this is amazing...
AFTERPAY
Source Afterpay
