In morning trade the Afterpay Ltd (ASX: APT) share price is rocketing higher after the release of a business update.
At the time of writing the payments company's shares are up over 17% to $25.86.
How did Afterpay perform in the first quarter?
During the third quarter of FY 2020, Afterpay's strong performance continued. At the end of the period its underlying sales reached $7.3 billion year to date. This was a 105% increase on the prior corresponding period. This compares to growth of 109% during the first half.
Another positive was that the month of March was the company's third highest on record for underlying sales. This is behind only November and December of 2019.
The company delivered underlying sales of $2.6 billion, up 97% on the prior corresponding period. This was driven by a 40% lift in ANZ sales, a 263% increase in US sales, and a $0.1 billion contribution by the UK business.
Also heading in the right direction is Afterpay's income margin. For both March and year to date, its income margin is higher than what it recorded in the first half.
One metric that the company doesn't want to increase is its gross losses. Pleasingly, this remained in line with the first half at 1%. This is particularly positive given the increased contribution from newer markets that have initially higher losses early in the lifecycle.
The company has also been busy making pre-emptive adjustments to risk settings. This has had a positive impact on loss performance lead indicators in the second half of March and early April.
At the end of March, the company's Net Transaction Margin (NTM) stood at 2% on a year to date basis. This was broadly in line with what it achieved in the first half. Which once again is positive given the increase in contribution from lower margin, earlier stage international regions.
Management notes that the mature ANZ region continues to be highly profitable and underlying cash flow positive. Estimated profitability on a year to date basis has increased since the end of the first half. Management feels this business is a blue-print for the profitability to be achieved in new markets over time.
Afterpay's balance sheet and liquidity position was strong at the end of the quarter. It had $541.1 million of cash and $719.2 million of total liquidity. Management notes that this means it has no requirement to raise capital in the foreseeable future. This is even after factoring in various potential downside scenarios.
Finally, at the end of the period the company had 8.4 million active customers. This was up 122% over the 12 months. It comprised 3.2 million customers in the ANZ market, 4.4 million customers in the US, and 0.8 million customers in the UK.
This was complemented by a 78% lift in active merchants to 48,400. The majority of which are in the ANZ market, where it has 38,600 merchants on its platform. In the United States the company recorded a 271% increase in active merchants to 9,100. Whereas in the UK there are 600 merchants on the platform.
April update.
Management warned that at this stage it is difficult to identify any sustained trends, in any of its regions, as a result of the impacts from COVID-19.
For example, it did see underlying sales moderate in the second half of March. Global underlying sales were 4% lower in the second half of the month compared to the first half.
However, the company notes that it has experienced positive growth month to date in April in all markets. It revealed that average daily underlying sales are up 10% on the second half of March.
North America update.
Work relating to its expansion into Canada is progressing well. However, the timing of its entry into this new region is yet to be confirmed. Though, management continues to target the current calendar year.
Preparations to launch in-store in the US are ongoing. Though, the timing of its launch will be dependent on the timing of a recovery in offline retail in the US.
Both are likely to play a role in the company's aim of surpassing its medium term underlying sales target of $20 billion by FY 2022 with a NTM of 2%. It reaffirmed this target this morning.
