The Afterpay Ltd (ASX: APT) share price has been garnering a lot of attention lately. It could be because this share climbed to yet another new record high last week of $70. It could be because this company’s share price has appreciated more than 700% since its March lows. Or it just could be that Afterpay, with its ‘new way to pay’, is a natural to the spotlight.
But now Afterpay has conquered a $70 price tag, an ~$18 billion market capitalisation and (as it looks likely) membership of the ASX 20 club, some investors are wondering ‘where to from here?’ Or perhaps more opportunistically, ‘how high can Afterpay shares climb?’
As Afterpay is a relatively new company with a relatively new product idea in buy now, pay later (BNPL), it is the sort of company that can be difficult to value and chart a growth trajectory for. But I want to start at the finish line by looking at the largest payments company in the world: Visa Inc. (NYSE: V).
You probably know Visa from its almost universal presence on the credit and debit cards that most people have in their wallet or on their phone.
But don’t let Visa’s tiny logo on your card fool you. This is a gargantuan company with a truly global reach. It’s currently valued at US$416.5 billion (A$598 billion), which is more than 4½ times the size of Commonwealth Bank of Australia (ASX: CBA). Visa makes money by clipping the ticket of every transaction that goes through its payment network. Think about how many people are tapping their Visa cards every day in Australia alone, take it to the world stage, and you get some idea of this company’s dominance.
Is Afterpay the new Visa?
So is this Afterpay’s endgame? To rival Visa, Mastercard and American Express in terms of global presence and market dominance? I’m sure Afterpay would like to think so. But is the runway there for this company?
Well, it’s hard to say. If Afterpay can get to the point where every shop in the world asks you ‘how would you like to pay, cash, card or Afterpay?’, then it will have made it. But how far off is this?
In Australia, not far in my view. Yes, it does have to contend locally with rivals like Zip Co Ltd (ASX: Z1P) and Openpay Group Ltd (ASX: OPY). But I think retailers in this country are at a point where they almost have to offer customers an option to ‘Afterpay it’. And signs are looking good for the US and UK markets too. In fact, Afterpay recently announced that it now has more than a million UK-based active users. And that’s after just a year in the market. Things are even better in the US, where Afterpay is enjoying widespread enthusiasm and more than 5 million active customers.
I still think there is at least a little froth in the current Afterpay share price, and I don’t think things are as rosy as the market is assuming for this company. Remember, Afterpay has yet to turn a profit. But if the company continues to grow on its current trajectory, paying $18 billion for the ‘next Visa’ would seem pretty cheap.
I’m not investing in Afterpay at these levels, but in not doing so, I acknowledge that I might be on the wrong side of history here.
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Sebastian Bowen owns shares of American Express, Mastercard, and Visa. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Mastercard and Visa. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Mastercard. 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.