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Afterpay Touch Group Ltd shares rocket on update and US expansion news

The Afterpay Touch Group Ltd (ASX: APT) share price has once again been one of the biggest movers on the local share market.

In afternoon trade the payment solutions company’s shares are up almost 13% to an all-time high of $7.35.

What happened?

This afternoon Afterpay Touch provided the market with a very positive business update for the three-month period ending December 31.

According to the release, second-quarter underlying sales came in at $551 million, up 50% from $367 million in the first-quarter and a massive 403% higher than the $103 million it achieved in the prior corresponding period.

As a result, the company expects to report underlying sales of $918 million in the first-half, compared to $145 million in the first-half of FY 2017. Which means that underlying sales are now tracking in excess of $2.0 billion on an annualised basis based on its recent quarterly performance.

The catalyst for this impressive top line performance was the growth in merchant and customer numbers on its Afterpay platform.

Approximately 11,500 merchants are now on-boarded, up from approximately 8,700 at end of the first-quarter. Customer numbers grew quickly over the Christmas period from 1.1 million to 1.5 million.

Pleasingly, net transaction loss is expected to be less than 0.8% of underlying sales, comfortably within its target range of 0.6% to 1%.

In light of this, the company expects first-half EBTDA (prior to one-off expenses and non-cash share-based expenses) to be in the range of $11 million and $12 million.

International expansion.

Whilst this is of course a fantastic performance, I suspect it was a separate announcement that has really got the market excited.

The company revealed that it is actively assessing geographic expansion opportunities for the Afterpay platform. One such market that is currently being investigated is the United States market.

In support of this initiative, Afterpay Touch has entered into a strategic relationship and new share issuance transaction with US based technology-focused venture capital firm Matrix Partners.

Matrix will invest A$18.9 million at A$6.51 per share and its general partner Dana Stalder has been invited to join the board.

I think this is fantastic news and can’t say I’m surprised to see its shares rocket higher. A potential expansion into the United States has been the key driver in my recommendation of its shares and I’m happy to see it could become a reality soon. I continue to believe it is a great buy and hold investment.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T 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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