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Why the Afterpay Holdings Ltd share price tumbled today

The Afterpay Holdings Ltd (ASX: AFY) share price has tumbled 6% today after the fintech star reported its half-year results.

Here’s what you need to know:

  • Underlying Afterpay merchant sales were approximately $145 million in the six-month period.
  • Annualised run-rate of underlying Afterpay merchant sales is in excess of $480 million.
  • First-half revenue from ordinary activities grew a staggering 2629% to $6 million.
  • Positive operating EBITDA of $0.4 million, excluding one-off debt facility establishment costs and non-cash share based expenses.
  • Net loss after tax widened to $1.4 million compared to a loss of $1.3 million in the prior corresponding period.
  • Strong balance sheet with cash of $31 million.

Although the market reaction to the result has been reasonably subdued, I think most would agree that this was yet another strong performance from the fast-growing payments company.

For those unfamiliar with the company, 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.

A key driver in the result has been the company’s ability to attract retailers to its service. According to the release the number of integrated retail merchant clients reached 2,000 during the half. Impressively, since the end of the half this number has grown to over 2,600.

Notable retailers using its platform include the likes of Super Retail Group Ltd (ASX: SUL), Optus, Cotton On, and General Pants Co.

I can’t say it’s a surprise to see a surge in retailers using the service. According to management, General Pants Co. has seen online sales rise 17% and the average order size increase 20% since implementing Afterpay’s platform.

It was a similar story with customers as well. At the end of the half Afterpay had 350,000 customers, but today that figure has increased to over 450,000. That equates to growth of over 2,000 new customers per day since the turn of the year.

But is it a buy?

Whilst I think Afterpay is one of the most exciting fintech shares on the ASX, its shares are certainly on the expensive side at 16x annualized revenue.

With so much growth baked into its share price, there is always a danger that its shares could come crashing down if growth slows.

But if it continues to grow as strongly as it has in the last 12 months, it won’t take long for the company to grow into its valuation.

Whilst it’s the best in the industry, in my opinion, and a far better option that rival zipMoney Ltd (ASX: ZML), for now it’s going to stay on my watch list.

In the meantime an investment in these three fast-growing shares could be a better option for investors. Each looks set to have a strong year ahead which I believe could lead to share price gains.

Big, Fat, Dividends

This company's dividend is almost the stuff of legends. Its reliable cash flows support a high payout ratio, and the company's stash of franking credits are the cherry on the top of the dividend cake. Based on the last 12-months of dividends, shares are offering a fully-franked 6.5% yield, which grosses up to a whopping 9.3%, when those franking credits are included.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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