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Why the Afterpay Holdings Ltd share price soared 45% in a week

What: Afterpay Holdings Ltd (ASX: AFY) has rallied another 6% on Tuesday morning, adding to the 11% surge in its share price on Monday.

The rally over the past two trading sessions brings the total gains for the online payments company to around 45% in the last week and 77% since the stock first landed on the ASX after an initial public offer (IPO) in early May!

Fellow online payment software solutions provider Touchcorp Ltd (ASX: TCH), which owns around 30% of Afterpay has not surprisingly also been enjoying investor support. Touchcorp’s shares have gained 20% in the past week.

So What: The catalyst which put a rocket under Afterpay’s share price was last week’s ‘Business Update’ which the company released to the ASX.

The announcement stated that since its IPO Afterpay “has continued to experience strong growth with respect to all key aspects of its current business”.

Now What: Afterpay’s software enables retail merchants to provide their customers with a ‘buy now, pay later’ offer and is essentially a user-friendly alternative to utilising a credit card.

According to last week’s ASX announcement, since the beginning of April, Afterpay has experienced massive growth. “The total number of retail merchant clients live with Afterpay has grown by more than 140% to over 300.”

Perhaps most importantly of all, Afterpay also noted that “approximately 65% of all Afterpay transactions since 1 January 2016 have consistently been generated by repeat Afterpay end-customers.”

The take up of Afterpay’s service certainly appears encouraging and its early mover status of signing up retailers is definitely an advantage.

Barriers to entry would however appear to be quite low and competition is likely to increase quickly in this financial service space. Investors will need to be careful in the assumptions and forecasts they make in determining value.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia owns shares of TOUCHCORP FPO. 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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