The Afterpay Touch Group Ltd share price is going gangbusters again

Credit: Daderot

Afterpay Touch Group Ltd (ASX: APT) is a technology payments company that allows its customers to buy a product now and then pay for the product later through four fortnightly payments.

This service is advantageous for the customer because fortnightly payments align with their fortnightly pay cycle and they pay no interest on their purchase. Instead, Afterpay Touch makes its revenue from charging the merchant a fee.  

Q2 FY18 Business Update  

In the Q2 FY18 business update, Afterpay Touch revealed that Q2 FY18 underlying sales were $551 million which represented a 50% increase on Q1 FY18 underlying sales.

Also, underlying sales for the first half of FY18 were $918 million which means that underlying annual sales for FY18 will exceed $2 billion if quarterly underlying sales continue to increase at the same rate.  

Also, Afterpay Touch has shown that it can effectively manage its bad debt as it revealed that the net transaction loss for the first half of FY18 is expected to be less than 0.8% of underlying sales.

This demonstrates that controls such as an account limit of $1,000 for each customer have been able to effectively mitigate the risk of bad debts. However, it must be noted that Afterpay Touch’s business model hasn’t experienced the full economic cycle and it’s possible that a recession will dramatically increase bad debts which could diminish Afterpay Touch’s margins.  

Also, a Goldman Sachs research note raised an interesting point about the hidden value of customer data that is collected by Afterpay Touch.

Analysis of this consumer data would be able to reveal insights about consumer buying behaviour which further strengthens Afterpay Touch’s value proposition to merchants. Moreover, the network effect will accelerate as more merchants start implementing the Afterpay platform. 

Expansion into the US market  

An announcement stated that Afterpay Touch is currently examining the possibility of entering the U.S. market. Afterpay Touch already has a proven track record of being able to successfully launch in a foreign market as shown by its successful New Zealand launch in the second half of FY17. Moreover, the opportunity to expand into the U.S. market has arisen because Afterpay Touch has recognised that factors such as millennial shopping trends in the U.S. are similar to those in the ANZ market.  

Foolish takeaway  

The Afterpay platform is continuing to grow strongly in the Australian market. Also, the possibility of entering the U.S. market means that there is potential for more upside with Afterpay Touch. Broker Bell Potter reportedly has a price target on the stock significantly above today’s valuation.

The Disruptors: 3 Revolutionary Aussie Companies to Back for 2018

We’re living in one of the most exciting times in investing history. Innovation and a booming culture of entrepreneurship are constantly creating new companies with the potential to make forward-thinking investors very rich. Now more than ever, one small, smart investment could make a huge difference to your wealth.

That’s why at The Motley Fool we’ve been scrutinizing the ASX to uncover the kinds of companies that we believe could turn into the next Cochlear or REA Group.

We’ve found three exciting companies that we believe re poised to perform in the new year. Click here to uncover these ideas!

Motley Fool contributor Andrew Chen has no financial interest in any company 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.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!