Afterpay (ASX:APT) share price on watch after stellar Q1 growth

The Afterpay Ltd (ASX:APT) share price will be on watch on Wednesday following the release of its Q1 business update…

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The Afterpay Ltd (ASX: APT) share price will be one to watch on Wednesday after the release of its first quarter update.

How did Afterpay perform in the first quarter?

The payments company continued its explosive growth during the first quarter of FY 2021 and recorded strong performances across all regions.

For the three months ended 30 September, Afterpay reported a 115% increase in underlying sales to a record of $4.1 billion.

The biggest driver of this growth was its US business, which delivered a 229% increase in underlying sales to $1.6 billion. This was supported by a 346% jump in UK underlying sales to $0.3 billion and a 63% lift in Australian underlying sales to $2.2 billion.

Pleasingly, Afterpay advised that its revenue margin remained stable and in-line with what it achieved in FY 2020.

Another positive was that the trend towards lower gross losses continued throughout the first quarter. Afterpay revealed that customer default payments remain below historical rates in all regions. This has resulted in its net transaction losses as a percentage of underlying sales also remaining low.

What were the drivers of its strong quarter?

This strong result was driven by another large increase in active customers and the growing frequency of use by its customers.

In respect to its customer numbers, Afterpay reported a 98% increase in active customers to 11.2 million. This comprises 3.4 million ANZ customers, 1.2 million UK customers, and 6.5 million US customers. The latter was up 175% on the prior corresponding period and now accounts for 58% of its total customer base.

Interestingly, Afterpay notes that 45% of its like for like sales growth in the first quarter was driven by Millennials, with Gen X and Gen Z driving 25% and 24% respectively.

Also growing strongly was its active merchants. At the end of September there were a total of 63,800 merchants on its platform, up 70% on the prior corresponding period. This comprises 48,000 ANZ merchants, 13,900 US merchants, and 1,900 UK merchants.

Management advised that the new merchants added over the quarter bring over $10 billion of total addressable online sales.

This has had a positive impact on customer acquisition in October. Management advised that it has seen an 18% increase in the daily average number of new customers month to date compared to the first quarter average.

Expansion update.

The company’s launch into Canada has progressed well with a number of large retailers now live, integrating, or signed. Key new retailers in the country include Aritzia, Lush, Ardene and Goop.

In Europe, the acquisition of Pagantis is progressing well and is on track for completion by the end of the 2020 calendar year. This remains subject to regulatory approval by the Bank of Spain.

Management notes that Pagantis provides it with a licence to operate in Spain, France, Italy and Portugal, as well as pending licence passport applications in Germany and Poland.

A cross functional detailed 100-day integration and launch plan has been developed to ensure Afterapy can launch as soon as possible post completion.

Finally, its plans to expand into Asia are progressing well. The company has established a base in Singapore to drive the development of the South East Asia market. Initial development of the EmpatKali opportunity in Indonesia is also underway.

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Motley Fool contributor James Mickleboro 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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