Few S&P/ASX 200 (INDEXASX: XJO) companies have received as much publicity over the past 12 months as Afterpay Ltd (ASX: APT). The buy-now, pay-later (BNPL) payment platform market leader has polarised a lot of consumers and investors, with everyone seeming to have an opinion on it. Some appear to love it, others think it is overhyped..
The Afterpay share price has skyrocketed in recent years after being founded in 2015 and being listed on the ASX in 2017.
Filling a clever niche in the credit market
Afterpay is targeting millennials in particular, fitting somewhere on the spectrum between debit cards and credit cards.
It is displaying continued strong growth in its home markets of Australia and New Zealand, although it is now starting to face growing competition from the likes of Zip Co Ltd (ASX: Z1P) and Openpay Group Ltd (ASX: OPY).
Uptake has been particularly strong with younger demographics, who find it a more appealing way to buy on credit than traditional credit cards.
International expansion strategy is on track
Afterpay is making good progress on its international expansion strategy into the United States (US), as it begins to gain an early mover advantage in that huge market. A recent company update revealed that Afterpay has been granted a California finance lender’s license.
It has recently entered the United Kingdom (UK), where it has already gained a solid start.
An established foothold in the US market and UK will position it well to then move into other markets such as Europe.
Tapping into other opportunities
The company has recently moved into healthcare services, with Afterpay now being offered at more than 2,500 dental and optical practices and the Afterpay service will be linked with eBay Australia in 2020, opening up massive opportunities.
Afterpay will no doubt explore opportunities to build on its strong market position through further diversification of its product offerings.
I believe it has strong potential to leverage the data it collects for targeted advertising similar to giants like Facebook and Alphabet and provide retailers with consumer insights on how to grow their sales further. Data mining is very much driving the success of these tech giants.
Factored into its current share price are expectations for its very fast growth to continue over the next few years, especially as Afterpay is still not profitable.
But barring in major regulatory barriers, I feel it looks reasonably well placed to meet those targets, assisted by its first mover advantage and size advantage over new entrants. Sure, competition is increasing, but more competition can sometimes actually be a good thing.
Whenever a new market segment grows so rapidly and appears to a winner, it’s only natural for other providers to try to enter and get a slice of the action. Just look at Netflix, and how Disney, Apple and Amazon are also now jumping into the video streaming market.
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Phil Harpur owns shares of AFTERPAY T FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO and ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. 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.