Afterpay Touch

Hi all,

Being from Oz, I thought I would introduce a company that has completeley disrupted the retail finance industry in Australia.

Way back, Australians would place items they wanted to buy, but didn’t have the funds, on ‘lay-by’. A deposit would be made, and the item/good would be put aside for the customer until the item is paid off, usially over a period of 3 or 4 pay periods.

Afterpay have flipped this concept, allowing cusotmers to take the item/good immediatley, and pay after (hence the name). The merchant is charge a 4% fee on the sale, and the coustomer pays back afterpay with four, fortnightly re-payments. The customer wins, as they get what they want now (so millenial), the merchant makes a sale more quickly, and afterpay clips the ticket on the sale. The whole process is steamlined via a mobile app.

Now, the average term of the “loan” (technically and legally, it is not a loan, as no interest is charged) is 4 weeks. This means that afterpay can churn its inventory about 12 times a year - thats 4% x 12 per annum.

Initially, the afterpay grew as an online payments system, but, with the mobile app, retailers on the main street merchants can utilise the service and do. In fact they must to compete, due to the network effect, as customers will shop elsewhere if they don’t offer “afterpay”.

Ok, so the business is quite young. Here are the past three year financials:

Year 2016 2017 2018
Revenue 1.4 22.9 142
Transaction margin 2.3% 2.5% 2.6%
Revenue growth 1405% 288%

Afterpay adj. operating cashflow was $35 M AUD for FY2018.

US Expansion - Commenced operations around May 2018;

May June July Mid-August
No. Retail merchants: 28 121 282 422
Underlying mercant sales: 0 11.7 20.4 TBC

A promising start in the US.

UK Expansion - Just begun.

2.5x Austalian addressible market

With about 230 million shares at $17 AUD per share, the company is valued at $3.9 Billion AUD ($2.8 Billion USD). That is a price to sales ratio at around 27. Although, revenue is expected to double (at least) this year.

Key risks: The Afterpay model has never been tested in a recession. The biggest risk to the business is defaulting customers. Net transaction loss is running at 0.4% in good times. No one knows what it will increase to in a recession.


Thanks for suggesting Afterpay for a look

For the more visual among us, here’s a nice financial summary…

What I’d be interested to hear about (if you are aware Sean) is the moat, and sustainable competitive advantage, comparison vs Klarna in Europe, etc?

What sort of products does it tend to be used for in Oz?

What factors make it a better choice than a 0% APR plan purchase, for example?

Is it instore, or online, or both?…

Commentary on Afterpay by a respected Australian fund manager:…


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So, some of my questions are answered in the SA link that I posted - worth a peruse IMO.

Afterpay management are listed here:

Looks like the founder is still CEO

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Afterpay have signed up 800 retailers in the USA. One high profile example is Urban Outfitters :

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The default risk for a recession seems like it would be quite high. What do you mean these loans are not legally considered to be loans? People who buy say a $1000 TV and use Afterpay are doing so because presumably they don’t have the money on hand or access to a credit card they use responsibly but still want the TV right now. That seems like a disaster waiting to happen for both the consumer and Afterpay though maybe not so much for the consumer if defaulting won’t hurt their credit and there’s no serious consequences.


Thanks for bringing up the idea, Sean.

My immediate concerns/questions:

I notice they have 16,000,000 shares marked for options exercisable between now and 2023 at prices ranging from $2-$7. That’s a lot of shares.

I haven’t found exact figures but have come across several coplaints and references to high management pay levels. It appears management will not likely find a need to be on government assistance.

Governance Risk
ISS Quality Score is 9, where 1 is lowest and 10 is the highest governance risk. The high score stems largely from executive compensation levels, and to a lesser extent, shareholder rights and board structure.

Shares ex-U.S.
Maybe it’s common in Oz, but the offerings that will not be listed with the SEC nor be published or available to buy in the U.S. strikes me as possibly being worthy of study. Or not. :slight_smile:

Lumpy Revenue(?)
These may be a case of faulty Yahoo! data, but the other line items follow the pattern (cost of revenue, etc.)

6/30/2018 113,899
6/30/2017 22,906
6/30/2016 1,383,241
6/30/2015 23,847

Momentum or lack thereof
To what would you attribute the current slump of 35%?

Thanks again,



I’ve taken a tiny nibble on this and may add more but keeping it a pretty small position for now until UK and US penetration results become clear. One of the investment theses on this is that PayPal or Square will have to buy them to stop them eating their lunch, (or another financial corp that wants to get into fintech). Growth rates are off the charts though so far!

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Afterpay is my largest position in Australian market. It’s one of the top performer in 2017-2018.
2018 Financial Year (July 1 17 to 30 June 18) Revenue growth 390.0% EBITDa growth 468.0%.

"Now, the average term of the “loan” (technically and legally, it is not a loan, as no interest is charged) is 4 weeks. This means that afterpay can churn its inventory about 12 times a year - thats 4% x 12 per annum. " Popular age group is 35 years old women.

The average term of the loan at moment is longer than 4 weeks, around 6-7 weeks. Afterpay charges retailers (physical stores and online) around 4%. But latest info coming through said upto 8% of the transaction. Also Afterpay charges late payments by the customers. A$10 for the first notice and A$7 for the second. Bad loans are running at 0.6-0.7%. The commercial interests charged by the bank to Afterpay is around 6% annually.
Share price is up more than 500% in the last 12 months. The Afterpay signs were no existence in my closeby shopping centre a couple of years ago. But now almost every store has an “Buy Now Pay Later” sign.

Since second half of 2017, Afterpay announced expanding into US partnered with Matrix Partners. According to the latest report, everything exceeds our expectation. The US retail market is 20 times the size of Australia’s.

Sudden announcement of UK expansion (Acquisition of ClearPay UK) and the annual report pushed its share price to ATH.

I think very likely SQ or Paypal will take it in the future.

I reduced part of my position (due to overweight >25%) and bought some SQ.

Australia is a small market comparing to US especially in the tech sector. I learnt a lot from this forum and picked up some Saul stocks last couple of months. I also had some neglected stocks :slight_smile: since 2012 such as google, netflix, master, visa and etc. I am re-balancing my portfolio at the moment so lots of learning along the way.

Thank you Saul and other contributors.




Commentary on Afterpay by a respected Australian fund manager:…


Hi Bombora,

I posted the performance of the fund Roger manages. First row his fund returns, second S&P 300 Accum. Index and third row the difference.


1 month -0.80% 1.40% -2.20%
3 months 0.59% 6.00% -5.41%
6 months 4.80% 7.17% -2.37%
12 months 11.52% 15.45% -3.93%

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