Last week, Afterpay Ltd (ASX: APT) provided an upbeat quarterly business update that showed no slow-down, despite the uncertainty surrounding COVID-19.
So what does Afterpay's business update tell us about the state of the buy now, pay later (BNPL) sector and what can investors expect moving forward?
The Afterpay business update
The company's business update was a win on all fronts. But what was most important was its trading performance through March and early April 2020. This provides vital insight for the state of the BNPL sector and how it will perform in this COVID-19 environment.
While Afterpay did acknowledge that it is a difficult period to identify any sustained trends, it reported that March underlying sales across all markets were strong with average daily underlying sales up 12% on January and February. Afterpay has been able to capitalise on the surge in online shopping, as online sales in March represented 88% of total global underlying sales.
Moving forward into the second half of March and early April, there was a significant moderation of underlying sales that coincided with the introduction of government enforced lock-down/isolation protocols. Global underlying sales in the second half of March versus the first half of March were 4% lower.
That said, the group has experienced an overall positive growth for April month-to-date in all markets, with average daily underlying sales up approximately 10% on the second half of March globally.
The company has a strong balance sheet position with $541.1 million total cash and $355.7 million outstanding debt. The business update stated that, given its capital management initiatives, there should be 'no requirement to raise additional capital for the foreseeable future'.
What does this mean for other BNPL players?
A joint study by Australian credit bureau illion and analytics firm Alphabeta has revealed that online retail and subscription services surged 61% in early April. Online retail is evidently a hot space, and its strength has also been reflected in the Afterpay business update, and potentially the rest of the BNPL sector players.
Most BNPL players including Zip Co Ltd (ASX: Z1P), Splitit Payments Ltd (ASX: SPT), Sezzle Inc (ASX: SZL) and Openpay Group Ltd (ASX: OPY) have largely announced that there will be no material impact from COVID-19, while reiterating their strong cash positions.
However, it's worth noting that Afterpay's business update reported its global underlying sales in the second half of March was lower than the first.
Foolish takeaway
The Afterpay business update has shed light on the resilience and adaptability of its business model. Underlying sales may be slightly weaker in the short-term, however, Afterpay has demonstrated the ability for BNPL shares to continue to drive sales momentum amidst this COVID-19 environment.
