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Why the Afterpay Holdings Ltd share price is going nuts today

The Afterpay Holdings Ltd (ASX: AFY) share price has climbed 7% in morning trade to $2.34 after the deferred payment provider reported another strong quarter of growth for the period ending March 31 2017.

Its fees from retailers for providing its services hit $6 million this quarter versus just over $4 million for the quarter ending December 2016, which represents an impressive quarter-on-quarter climb of 40%.

Perhaps more impressive is the fact that Afterpay was not too far off doubling the number of retailers using its services quarter-on-quarter, with total retailers signed up now around 3,500 compared to 2,000 at the end of the last quarter.

The group added the likes of Myer Holdings Ltd (ASX: MYR) and Telstra Corporation Ltd (ASX: TLS) as clients over the last quarter, although the impressive headline or growth numbers are limited by the fact that the company has not as yet revealed its cash flow statement for the quarter.

For the six-month period ending December 31 2016 the business posted a net loss after tax of $1.4 million on revenues of $6 million.

At today’s share price it looks to be on a giant valuation given it reportedly has around 180 million shares on issue. However, the valuation is complicated by the fact the business is due to complete a scrip-based merge with the profitable payment services provider Touchcorp Ltd (ASX: TCH) by late June 2017.

The combined Afterpay / Touchcorp group will definitely be one to watch for investors prepared to take on more risk in pursuit of superior returns. For now though it’s too speculative for me, but I will keep it on the watch list for further research given the strong track records of both businesses.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

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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