Fast-growing fintech company Afterpay Holdings Ltd (ASX: AFY) has seen its shares surge higher this afternoon after the release of an impressive quarterly update. At the time of writing its share price has climbed 4.5% to $2.79.
Thanks to a very strong Christmas period the payments company processed over $100 million in underlying sales during the December quarter.
This was a massive 146% increase on the prior quarter and I believe it is a testament to the growing popularity of its service for both consumers and retailers.
Afterpay offers retailers the ability to provide an interest-free buy now, pay later, service online and in-store. The company bears the default risk in exchange for a small commission on the transaction.
Although it is a competitive space with a number of rivals including zipMoney Ltd (ASX: ZML) fighting for market share, Afterpay continues to grow its retail merchant client list at a rapid clip.
Since its AGM in November, Afterpay has added a further 600 retail merchant clients to its roster, bringing the total clients on board to 2,100. Recent additions include major retailers such as Super Retail Group Ltd (ASX: SUL), Lorna Jane, Cotton On, and RCG Corporation Ltd (ASX: RCG) operated Athlete's Foot.
Pleasingly, term sheets have been signed with other major retailers and formal contracts are expected to be signed in the first quarter.
It's not just retailers that are growing at a rapid rate. The number of unique customers has also grown strongly since its AGM. The company finished the year with 375,000 unique customers, compared to 250,000 in November.
Overall I'm very impressed with how the company has performed over the Christmas period and can't say I'm surprised to see its shares climb higher.
But with the company still operating at a loss, I wouldn't suggest investors invest in its shares just yet.
Afterpay may still have around $31 million in cash on hand, but that won't last long if things continue as they are. Had the company not raised $36 million through the issue of shares in October, its cash balance would have been wiped out in full.
As a result I wouldn't be too surprised to see another capital raising in the next 12 months. Afterpay clearly has enormous potential, but it's not quite in the buy zone for me at this point in time.
