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The Afterpay Touch Group Ltd share price rockets on US market launch

The Afterpay Touch Group Ltd (ASX: APT) share price soared on Tuesday morning’s trade, following the release of a much awaited market update on the launch of the buy-now-pay-later business in the US market.

At the time of writing the stock was 10% up to $7.65, approaching the highs of two months ago, when the fintech was at the top of its price run before rumours of imminent regulatory scrutiny and a couple of broker downgrades sunk it 30% lower in the space of three weeks.

The commencement of operations in the US comes at the right time, boosting Afterpay’s growth prospects after a recent business update flagged a 3% decline in underlying sales on a quarter-on-quarter basis, raiseing concerns that the business was about to peak in Australia.

Afterpay will start transacting in the US this week, initially as an online platform only, with intention to introduce in-store capability after gaining insight of the local retail sector and customer dynamic.

The main launch partner is Urban Outfitters, one of the largest fashion retailers in the US with annual sales revenue of around US$3 billion, which signed an agreement for a period of up to five years, with a minimum of two years. Afterpay secured about 50 other contracts or term sheets with US based companies and Australian firms with an overseas presence.

There is a substantial opportunity for growth in the US market, given its size and characteristics: annual retail online sales of US$450 billion and a population of 63 million millennials, two thirds of which don’t own a credit card.

The expansion is funded by Matrix Partners – an American venture capital firm that invested about $20 million in Afterpay to finance the first 12 months of operations in the US – and is led by Afterpay co-founder Nick Molnar together with Matrix general partner Dana Stalder, who is also in Afterpay’s board.

Foolish takeaway

There’s no doubt the US market could disclose huge opportunities for Afterpay, and it may just be the first of several overseas ventures for the Aussie fintech.

I think Afterpay is one of the most exciting stocks on the ASX and there is true value in its simple and innovative business model. I’ll watch it closely, particularly with respect to its relation with regulators in Australia and the US, and I would consider investing when a correction provides a better buying opportunity.

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Motley Fool contributor Tommaso Autorino 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 Scott Phillips.

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