Why the Afterpay Touch Group Ltd share price sank over 7% lower today

In morning trade the Afterpay Touch Group Ltd (ASX: APT) share price has taken a tumble lower following the release of a business update.

At the time of writing the fintech company’s shares are down almost 4% to $5.70 but were down as much as 7.5% to $5.49 at one stage.

What was in the update?

This morning Afterpay Touch advised that as of the end of the third-quarter of FY 2018, over $1,450 million of total underlying sales were processed through the Afterpay platform.

This represents a 400% increase on the $290 million processed during the first three quarters of FY 2017.

According to the release, during the third-quarter Afterpay Touch generated underlying sales of $530 million, up from $145 million a year earlier.

While this was a 3% decline on the second-quarter of FY 2018, management was quick to point out that the second-quarter includes the Christmas peak season trading uplift.

Furthermore, there were fewer days in the third-quarter. Based on an average daily underlying sales perspective, sales were 2% lower quarter-on-quarter.

I suspect that investors may be concerned that the Afterpay platform is close to peaking in Australia based on this result. After all, a year earlier in the third-quarter of FY 2017 underlying merchant sales grew 41% on the second-quarter despite its Christmas boost.

Which is why its expansion into the United States could be increasingly important for its future growth. In today’s release management advised that the establishment of its U.S. business is going to plan and it intends to provide a further update next month.

Other key metrics from today’s release include:

  • Over 7,000 individual shopfronts are now live with Afterpay in-store including all Super Retail Group Ltd (ASX: SUL) stores.
  • Underlying in-store sales were 21% higher than Q2 FY 2018.
  • Approximately 14,000 retailers and over 1.8 million customers currently live and transacted on the Afterpay platform.
  • Merchant fees, net transaction losses, and net transaction margins remained stable in the third-quarter.
  • Afterpay is close to establishing a $200 million warehouse receivables funding facility with a large international bank, on top of its existing $350 million facility with National Australia Bank Ltd. (ASX: NAB).

Should you invest?

I think Afterpay Touch is one of the most exciting companies to have emerged from Australian in many years.

However, I do have concerns that its Australian business could be close to peaking. In light of this, I plan to wait to see how its U.S. expansion goes before making an investment. If the Afterpay platform can recreate its Australian success in that market, then I suspect the company could continue its meteoric growth for many years to come. But time will tell if that happens.

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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, National Australia Bank Limited, and Super Retail Group Limited. 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 Scott Phillips.

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