Merchants charging fees for using APT, page-6

There are 3 key risks I see for them, although they did a good job of writing up their risks in their recent investors report.

1. Increase in defaults
Unemployment and increases in bad debts go hand-in-hand. I sold for this reason without appropriately reviewing both US and AUS unemployment packages or accounting for the surge in sales due to the one-off stimulus. Regardless of the bad calls in the past, looking forward I would hold this as their biggest risk as of today. I'm unsure what level of debt recovery their can accomplish on their bad debts, but regardless they are always going to be losses when they occur. For me this branches into 2 sub risks here -

1. Negative publicity surrounding cases of debt collection when they argue their not a financial service/credit provider. Refer to the California ruling to get a flavour for what that could look like.
2. Losses after debt recovery exceeding revenues from new customers (1x total loss worth roughtly 20-30 paying customers)

The counter argument comes in 2 key ways.
1. Their credit decision model is very clever, and can spot bad debts before they're taken on (plausible but risky - they lack a track record).
2. Their growth is so phenomenal that any losses will be swallowed up in the short term, while only repaying customers are retained (short bad debt cycle).

I'd review the unemployment rates and potential fiscal stimulus in the US and AUS to monitor this risk.

2. Retailer default
When Afterpay execute the sale, they transfer funds to their retailer and with-hold the %cut of the transaction. Should the retailer then fail to provide the good or service to the customer, Afterpay will need to refund any monies to the customer and take a loss from the merchant. Given the rise of bankruptcies that are occurring and will continue to occur in the US and AUS, this is a real concern. However, not being privvy to the terms of Afterpays merchant agreements, I cannot assess where they would sit in this scenario nor how large the risk exposure is.

3. Merchants charging a fee for AFTERPAY use
As many note, there is little benefit to using Afterpay over using a credit card. However, the benefit is there (otherwise consumers wouldnt be using it DUH) but this benefit will largely diminish should the item price increase by 1-5%. While this will hurt revenues, it'll also leave Afterpay only being used by those without other options due to liquidity issues. Thus the % of their customers of poorer credit worthiness would likely increase.

So without delving deep into any math, that would be my main 3 concerns. Regulator concerns exist but given the current climate I rate them as low in the short term.

I wasn't comfortable holding them at a 300x P/E ratio, while others are comfortable at the now 800x P/E ratio. While in Growth companies like APT - the P/E ratio doesn't matter as much, it is important to consider the risk/reward situation you move into. The collapse from $40 down to $9 earlier is the risk you carry by holding this stock. It's highly hyped - so the upside is huge - but equally your downside can be massive.

GLTAH.