Is the Afterpay Touch Group Ltd (ASX: APT) share price a buy?
The Afterpay share price is up another 4% today at the time of writing after yesterday's rise of 5.25%.
The buy now, pay later business is seeing a rise after receiving a broker upgrade yesterday from Citi.
One of the biggest reasons for the upgrade is that the share price had fallen to a relatively attractive level. The Afterpay share price had fallen by 29% between mid-October to Wednesday last week with worries about the RBA because it's looking into the buy now, pay later sector.
One of the main reasons Afterpay is so attractive for customers is that it's free as long as customers pay on time, but they get to pay over a longer period than people who pay upfront. But it's the merchants that pay the fees to Afterpay, they aren't allowed to charge customers who use the service.
But the RBA is considering whether not allowing to pass on the fees should be possible or whether regulations should be changed.
Afterpay argues that it provides more than just a merchant service, it also provides advertising and so on.
That's not the only negative event for Afterpay, it's also going through an AUSTRAC process which is checking its anti money laundering / counter terrorism (AML / CTF) compliance.
But FY19 was a solid year for the BNPL business, global underlying sales rose 140% to $5.2 billion with a run-rate (at the time of reporting) in excess of $7.2 billion.
Active customers were up 130% to 4.6 million (and had grown to 5.2 million by reporting date). Active merchant had grown 101% to 32,300 in FY19 (and had reached 35,300 when it reported).
Gross losses reduced to 1.1% in FY19 which showed that its customer base is becoming 'safer' as it scales with more repeat business.
Foolish takeaway
Afterpay is trading at 138x FY21's estimated earnings, but investors are focused on what Afterpay can achieve over the next decade in the US and UK. It's too expensive for me to consider buying shares with so many different potential outcomes, more regulation scrutiny and higher competition.
