In one of Afterpay Touch Group Ltd's (ASX: APT) most painful trading days, the Afterpay share price fell by 7% today.
Of course, that should be taken in context, the Afterpay share price is still up 7.4% over the past month alone.
The cause of today's dunk was a note out of UBS saying that the Afterpay share price could halve over the next year to $17.25. We haven't seen that share price since the start of the year.
The analysts at the investment bank are concerned about increased regulatory oversight and less growth in the United States than the current share price is suggesting.
The US is a much bigger market than Australia, so it's far more important to the Afterpay investment case that the buy now, pay later company wins a good market share over there.
But Afterpay is not the only business growing strongly. Zip Co Ltd (ASX: Z1P) is doing well domestically and has made acquisitions to expand overseas. Plus there's plenty of others like Splitit Ltd (ASX: SPT), Sezzle Inc (ASX: INC) and FlexiGroup Limited (ASX: FXL) also wanting a piece of Afterpay's BNPL pie.
UBS thinks Afterpay will suffer from its own success and that competition could dampen its chances of becoming a global powerhouse.
Foolish takeaway
Whilst Afterpay's customer numbers, merchant numbers and underlying sales are growing strongly, I'm left wondering whether Afterpay will be able to deliver strong profitable growth in the coming years. If gross margins start shrinking it could mean Afterpay doesn't generate the expected profits in the coming years.
