Is the Afterpay Touch Group Ltd (ASX: APT) share price a buy after the latest retail sales showed a sharp rise in retail sales in November 2019?
According to ABS stats, adjusted retail sales rose by 0.9% when the growth was only expected to be 0.4%. That doesn't sound like a lot, but 0.5% is a big difference when you're talking about billions of dollars.
Afterpay in-particular has already reported that its underlying sales jumped on Black Friday and Cyber Monday (although the Cyber Monday sales didn't actually fall in November).
The buy now, pay later company reported that over those two days it saw underlying sales growth of 160% compared to 2018 – although this includes international growth, not just Australia. Afterpay also added 140,000 new customers over those two days, again this was a 160% rise compared to 2018.
In the update to inform investors about November 2019's performance the company reported $1 billion of underlying sales, which was a large chunk of the $3.7 billion achieved in the first five months of FY20.
The big question for Australian retailers will be whether the November growth has taken away from December's numbers. For my own household I can say we did our Christmas shopping a bit earlier this year.
Afterpay continues to see its number of customers and merchants grow. Each new merchant opens up more options for shoppers and each new customer increases the importance of Afterpay to merchants in reaching customers.
Buy now, pay later is a fast-growth market for every business involved at the moment. Afterpay, as the biggest and the one with the most recognised brand, certainly has an advantage. If you pay on time Afterpay doesn't cost the customer anything, so why would the customer want to try out the competition?
The longer a customer stays with Afterpay the more transactions they make per year and the less likely they are to miss a payment.
However, regulators are now looking into whether retailers should be able to pass on the merchant fee to customers.
Foolish takeaway
Afterpay has done wonderfully to change the Australian retail landscape and now it's doing very well in the US and the UK, whilst also expanding into new industries like travel and healthcare. However, I'm unsure how much profit Afterpay will be making in the future because of the uncertainty surrounding the merchant fees and the current lack of profit. When something is too hard I'd rather look at other shares that are easier to come to terms with.
