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Afterpay share price rises on impressive HY20 result

The Afterpay Ltd (ASX: APT) share price went up more than 1% after the buy now, pay later business reported some more impressive growth in its half-year result.

Afterpay’s FY20 half-year numbers

Afterpay reported that its underlying sales rose by 109% to $4.8 billion. Its active customer numbers rose by 134% to 7.3 million and its active merchants increased by 86% to 43,200.

It now has a run rate of over $11 billion per annum, based on the trading in the second quarter. The current US and UK underlying sales run rate is now over $4.3 billion per year. The addressable online opportunity from its contracted or currently integrated merchants in the US and UK is around $30 billion, which is similar to the total addressable retail online opportunity in Australia.

Interestingly, Afterpay continues to grow its in-store offering presence and in-store now represents approximately 24% of total ANZ underlying sales.

Its gross loss as a percentage of underlying sales improved from 1.2% to 1%. As a percentage of sales, the net transaction margin remained stable at 2.1% despite a lower contribution from late fees and a higher contribution from newer markets, which are initially lower margin.

Total Afterpay income was up 105% to $212.2 million. The buy now, pay later operator said that its net transaction margin increased by 118% to $102 million. The merchant margin increased slightly to 3.8%, up from 3.7% last year.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) fell 51% to $6.8 million due to the continued investment in marketing, people and technology according to Afterpay.

Afterpay said it recorded a statutory loss after tax of $31.6 million which was impacted by one-off items and non-cash items such as share-based payment expenses.

Outlook

The company continues to invest for growth and is aiming to launch in Canada in 2020. It’s also aiming to reach 9.5 million active customers by the end of FY20, remember it had 7.3 million customers at the end of December 2019. It’s aiming for in-store launches in the US in the second half of FY20 and pursue new target markets.

It’s still aiming to exceed its previously stated target of over $20 billion of underlying sales by the end of FY22.

The new partnerships with Visa and Mastercard, as well as other initiatives, will continue to help with new opportunities for Afterpay.

Regulation also continues to be a focus for Afterpay as it works with various bodies to discuss the buy now, pay later sector and its development. AUSTRAC has received and is considering the independent auditor’s report, and Afterpay is working on implementing the recommendations.

Foolish takeaway

It’s all about growth, growth, growth for Afterpay. The growth of its top line is very impressive, but Afterpay is not closer to making an actual profit. It’s valued for a lot of profit generation at some point, but I wouldn’t want to bet on what its margins will be in three or five years from now. I’m happy investing elsewhere at this price.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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.

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