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Down 75%: Afterpay issues letter to shareholders after share price implodes

Afterpay Ltd (ASX: APT) has issued a letter reassuring shareholders following the extraordinary 75% fall in its share price over the last month. Afterpay shares topped $40 in February but have now plummeted to just $10 at the time of writing, as coronavirus uncertainty and recession fears take their toll

Afterpay told shareholders it was not aware of any information, outside the current uncertainty in markets generally, that would have precipitated its recent share price performance. According to Afterpay, it has a business model, balance sheet, and customer base that creates a level of protection in times of uncertainty. 

Afterpay said it has not seen any material impact on its business activity, the timing of instalment repayments, or transaction losses to date. The company emphasised that its robust balance sheet and liquidity position provided it with the capacity to continue to fund operating expenditure plus significantly expand its business activities in the medium term. 

According to the letter, the company has a strong liquidity position of $672.1 million with cash on the balance sheet of $402.5 million. It has over $1.09 billion of warehouse facilities in place providing the capacity to grow underlying sales by an additional $15 billion above its Q2 FY20 run rate of over $11 billion. 

CEO Anthony Eisen said Afterpay’s service “promotes budgeting by responsible customers,” emphasising that the service is unable to be accessed by customers that have a single overdue repayment. Over 90% of monthly underlying sales are generated by repeat customers.

“We believe the appeal of Afterpay as a disciplined budgeting tool will not be diminished and may be enhanced with changing market conditions,” Eisen told shareholders. 

Afterpay emphasised the diversity of its portfolio, noting that there is no material concentration in the portfolio from a merchant or customer perspective. With a business model based on high-frequency purchasing and repayment rates, average transaction values are low (around $150) as are average outstanding balances (around $211). 

The company told shareholders that it has a “dynamic system and risk mitigation capability” and is “implementing measures proactively,” although it did not specify what these measures involved. Nonetheless it said it was “well prepared to add further measures as required”.

Afterpay acknowledged it was not immune to the current ‘unprecedented circumstances’ which were causing significant concerns in financial markets across the world. It intends to release a business operating update following the end of the current quarter, which it says will provide further details around its balance sheet, liquidity position, and what it is seeing in terms of developing trends. 

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Motley Fool contributor Kate O'Brien 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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