After Pay

I have not followed it in detail. Did not like the valuation, did not like that it is in the credit business (I know it is more complicated than this) but that is its essence in the end.

After Pay has been absolutely demolished. Down again, more than 20% as I type on high volume. What is it about After Pay that should make us stand up and want to care and that After Pay will bounce back strongly when we come out of this virus crisis?

It has fallen from the $40s to $14 in a short time period. Did something real happen here, is it just cyclicality, or is it a completely out of hand panic selling?

Normally I know more, but as with many on this board, the stuff to do has grown exponentially with the current crisis. Many are at home doing not much however but streaming media that apparently the market things Roku and TTD will not benefit much from. Who can say there. My streaming has remained consistent, my kids I noticed are on uTube more than streaming TV, but I doubt that it characteristic of most of the lads and lasses out there at home and not in school.

Tinker

2 Likes

“Many are at home doing not much however but streaming media that apparently the market things Roku and TTD will not benefit much from. Who can say there. My streaming has remained consistent, my kids I noticed are on uTube more than streaming TV, but I doubt that it characteristic of most of the lads and lasses out there at home and not in school.”

I think the market reaction to TTD and ROKU, besides the obvious entire market sell-off, is that advertisers know there aren’t many people running out to buy things, hence they aren’t too inclined to spend big ad dollars buying up space on the TTD and ROKU platforms. Yes, people are almost certainly watching more tv, but the commercials mean less than they ever have to the viewer. With less ad spots being bought, the price per spot shrinks, and so does revenue for TTD and ROKU.

3 Likes

brandonwahl wrote: “With less ad spots being bought, the price per spot shrinks, and so does revenue for TTD and ROKU.”

I’m sorry to pick on you in particular because I think this is a common misconception. To be honest, the way you phrased it, you are correct. But, for TTD at least, the point isn’t relevant.

The Trade Desk sells ads to its customers at cost; it doesn’t mark them up. To my mind, this makes revenue from ads irrelevant – just “pass-thru” stuff. The Trade Desk makes money on its contracts with the advertisers buying those ads. It is the contract growth one needs to watch – ad spend is fairly meaningless. If ad buyers view the lack of spending due to COVID-19 fears as a long-term trend, they might be hesitant to renew, extend, and/or enlarge contracts with The Trade Desk. I suspect that advertisers view COVID-19 as a near- to medium-term event. I don’t envision much of an effect on contract revenue (as distinct from ad revenue) and I don’t envision much of an effect on profitability. I own some TTD shares, and I plan on digging into this much more deeply over the next several weeks. But, I must say, the fact that TTD sells ads at cost – aligning their customers’ interests with theirs – is a key part of what attracts me to this company’s business model. And I frequently see posts on this board that seem to gloss over this critical point.

I’ll offer more once my research is deeper.

Fool on!
Thanks, and best wishes,
TMFDatabaseBob (long: TTD)
See my holdings here: http://my.fool.com/profile/TMFDatabasebob/info.aspx
Peace on Earth

Please note: I am not a member of any newsletter team. My opinions are my own and do not necessarily reflect those of the TMF advisers. I am not an investment professional, merely an investor.

36 Likes

I recall some mention back when Afterpay first came up on the board that its business model of lending primarily to people without access to more traditional sources of credit like credit cards could make them especially vulnerable to an economic downturn. Well, here we are on the way to a very deep global recession and Afterpay is getting murdered.

3 Likes

Yes, I recall now. After pay is a form of factoring receivables. Extremely vulnerable to the economic cycle. The share price ran up based upon revenue and customer growth, but many had troubles with its business model. Frankly, does not seem like a business model worth a huge multiple.

Financial companies I have found (square and Paypal are exceptions to this rule) are hazardous. There was a time I was told to get more pragmatic with my investment style. I invested in a re-insurer. Did well for a bit, but then a huge hurricane came. I heard it on the radio, and I sold within seconds. 20 minutes later the stock cratered.

There was a private student loan company that was doing smashingly well…different sort of company. Huge demand, no bankruptcies etc by payors, co signers and the like. Fancy financial terms tossed about. Demolished in 2008-2009 never to return.

A bank in California that increased 10x on real estate lending growth…yeah, boom.

After Pay…

I just laugh when I am told that investing in high growth category dominating stocks is so risky. I have to inquire {to myself} how do you define risk? My risk tolerance does not include financial companies selling at a premium as if they were a high growth category dominating disruptive company.

Tinker

7 Likes

Hi Tinker, I sold out of my little Afterpay position completely over the last month. Not because it was a credit company (their average days outstanding were only 30 days after all, and no one could make a new purchase if they were behind on a payment). I got out because they were focussed on moderate priced retail clothing purchases, which I figured would get killed with lockdowns of populations and clothing stores closed).
Saul

4 Likes