Why Afterpay Touch Group Ltd (ASX:APT) shares are skyrocketing

One of the best performers on the local market today has been the Afterpay Touch Group Ltd (ASX: APT) share price.

After a slow start to the day, the Afterpay Touch share price rocketed in late morning trade following the release of a business update.

At the time of writing the payment company’s shares are up 16% to $12.66. At one stage they rose to an all-time high of $13.25.

What was in the update?

According to today’s release, the company saw over $2.18 billion of total underlying sales processed through the Afterpay platform in FY 2018. This is an impressive 289% increase on FY 2017.

A solid fourth-quarter played a role in this strong full-year result, with underlying sales coming in at $736 million in the final quarter. This was a 171% increase on the prior corresponding period and a 39% lift on the previous quarter.

Another key stat for Afterpay is its net transaction loss. This came in at a reasonably healthy 0.7% in the first-half and has been trending lower in the second-half.

As of the end of the June, there were approximately 16,500 retailers and 2.2 million customers on the Afterpay platform. Three months ago this stood at 14,000 retailers and over 1.8 million customers.

In light of this strong performance, total group revenue is expected to come in at $142 million.

Earnings before interest, tax, depreciation, and amortisation (EBITDA) is expected to be between $33 million and $34 million in FY 2018, whereas group “EBTDA” is expected to be in the order of $27 million to $28 million.

Both are prior to one-off and share based expenses but include the majority of expenses incurred in establishing and operating the U.S. business.

How is the U.S. business performing?

Afterpay appears to have had a strong start to life in the United States following its launch in the middle of May.

According to the release, $11 million of underlying sales were made in the first full month of operation. More than 400 retailer contracts have been signed and over 200 retailers are currently transacting on the platform, including Urban Outfitters and Revolve.

Management has advised that the proposition is performing well with strong conversion and basket size dynamics similar to its experience in Australia.

New verticals.

But it isn’t just the U.S. launch that could be a major growth engine in the future. The company also revealed that it is looking at new verticals.

The company has begun work to grow a presence in health, beauty, entertainment, and travel markets.

In respect to health, the company has signed a five-year deal with major dental PMS provider, Software of Excellence. This will see the integration of Afterpay into its practice management platforms across Australia and New Zealand. A pilot with a major dental group in Australia will commence shortly to test the category proposition.

Management also advised that a review of the European E-Services business is in progress.

Should you invest?

I think this result demonstrates why Afterpay Touch is one of the most coveted tech shares on the local market.

While it is a high risk investment option due to its sky high valuation and regulatory risks, I believe it is capable of growing at a rate that justifies the premium. As such, I would put it up there with Bravura Solutions Ltd (ASX: BVS) and Hub24 Ltd (ASX: HUB) as a fintech share to buy and hold.

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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 and Bravura Solutions Ltd. 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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