they have 750m in tangible equity. So they could write off 100% of their current receivables book and remain solvent.
The situation, if that occurs, would be extremely dire. I would argue that virtually every bank in Australia and the US would be insolvent in that situation (certainly the Australian banks would be due to massive drop in house prices that would have to accompany it).
Afterpay has the lightest and most nimble recievables book out of every lender on the planet. The market is extremely dislocated right now- if the assumptions driving Afterpays value down this much are true, then a huge proportion of the businesses on the ASX are worthless. I have held XRO for longer than APT (>4yrs) and I see XRO aa having greater risk than APT (but it will also be fine).
Ultimately it comes down to what is true. Afterpay maintains that people ultimately are good, and can be trusted. That they don’t buy things they don’t want/need without any intention of paying back. That they have been stuck with revolving credit, with usurious rates, due to poor understanding of personal finance. Every single empirical data point to date, has supported Afterpays claims. It remains to be tested in a recessionary environment. Conversely, if their claims ARE true, and they navigate this downturn in good shape, they will have answered one of the last major criticisms.
I have now added 100% to my initial holding, and will continue to add more and more as the price goes down, unless information emerges that suggests they don’t handle this well (eg aggressively growing new customers in the context of this recession would be a bad decision IMO). There is an update scheduled for a week, it will be interesting to see what it says.
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