This morning the AfterPay Touch Group Ltd (ASX: APT) share price is up 3.4% to $17.44 and it's up 25% over just the last month.
If that's not enough the buy-now-pay-later start-up is up around 500% since June 2017 as a result of its blistering growth in Australia and North America.
According to its latest regulatory filing AfterPay has 236.7 million shares on issue (on Jan 25 it issued another 2.4 million shares to senior management) to give it a market value of $4.13 billion.
Not bad for a business that many thought was the junior partner after its 2017 merger with software payments business Touchcorp.
Ever since that merger AfterPay has not looked back to have consumers "AfterPay" $2.2 billion worth of goods and services for the six-month period ending December 31 2018.
It now has 3.1 million consumers using AfterPay and signed up a whopping 7,500 consumers per day over the quarter to December 31 2018.
The key to its success is the attractive proposition it offers retailers of all sizes and across all verticals from apparel to white goods, or even services such as flights and the dentist.
The benefit to retailers is that they see increased sales when offering consumers the option to 'AfterPay' or spread payments (interest free) in a way that seemingly makes sense to the financially challenged.
It now has 23,000 retailers signed up globally all of whom paid AfterPay around 4% of sales as its cut for providing the service over FY 2018.
So FY 2018's merchant sales of $2,184 million translated into AfterPay revenue of $88.3 million in FY 2018 on top of a further $25.6 million in "Pay Now" revenue which is an AfterPay euphemism for 'late fee' revenues when a consumer fails to pay on time.
in FY 2018 its net transaction loss came in at $9.3 million, which is 0.4% of the $2,184 million in retailer sales.
AfterPay has to trouser this loss, but we can see it's nowhere near high enough to worry investors as long as it stays around or below the current 0.4% level.
Should you buy?
It seems AfterPay's growth prospects look strong when you consider its breakneck growth in the giant U.S. retail market.
However, the question for investors is whether today's $4.13 billion valuation is justified given it grew underlying sales 140% for the six months to December 31 2018 compared to the prior period.
In my mind it might be worth the valuation as even a back of the envelope calculation suggests revenue will rocket higher in FY 2019 to well above $200 million with the potential for FY 2020 to see revenue double again if the U.S. and U.K expansion are a success. This should translate into big profits and a share price likely far above today's.
It's certainly high-risk though and after a hot share price run I'd rate the stock a hold for now, but if it were 15% cheaper on a valuation of $3.5 billion or share price of $14.90 or below I'd rate it a speculative buy.
