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Here’s why the Afterpay (ASX:APT) share price fell 11% in February

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In perhaps an unusual move for Afterpay Ltd (ASX: APT), the buy now, pay later (BNPL) pioneer had a month in the red. Yes, the Afterpay share price started in February at $135.10 a share and ended it at $120. That represents a fall of 11.18% over the month.

Of course (as it so often does), these two numbers don’t tell the entire story of Afterpay’s volatile February. Even though the month saw an 11% fall overall, it also saw Afterpay break its all-time high mid-month ($160.05 a share), which saw Afterpay pile on 16.6% between 1-10 February. But it also saw a near-25% drop between 10-26 February.

But one might say Afterpay shareholders should be used to those kinds of moves by now.

So why did Afterpay have such a topsy-turvy month?

Well, seeing as we’ve just taken the exit on the February ASX earnings season, you might be tempted to think that this month’s moves can be put down to Afterpay’s earnings report. You’d be right. Afterpay announced its earnings for the 6 months ending 31 December 2020 on 25 February. The announcement also included a trading halt. Afterpay shares were off the market for the entirety of 25 February as the company announced a convertible notes capital raise. Upon resumption of trade on Friday 26 February, the Afterpay share price opened more than 10% lower.

Afterpay shares: earnings and notes

Afterpay hasn’t exactly delivered a car crash of a result. Quite the opposite in fact. It reported that underlying sales over the half-year were up 106% to $9.8 billion. A 531% surge in earnings before interest, tax, depreciation and amortisation (EBITDA) to $47.9 million was also welcomed. Triple digits all round.

So why the plunge afterwards? It could be that investors didn’t like what they saw with Afterpay’s convertible notes issuance. When trading resulted on 26 February, Afterpay told investors that it had raised $1.5 billion from issuing the notes. These notes expire in 2026 and are convertible into fully paid ordinary Afterpay shares at a price of $194.82. Afterpay also told investors that its two co-founders and co-CEOs, Anthony Eisen and Nicholas Molnar, recently sold 450,000 shares each (worth around $60 million). Even though this move might be understandable from a ‘diversification of wealth’ perspective for the two gentlemen, those kinds of sales are rarely looked at favourably by fellow investors.

A heavy sell-off in tech shares across the ASX and US markets toward the end of the month also did Afterpay shares no favours either.

So that was February. After ‘just another month’ of eye-watering volatility, who knows what March will bring for the Afterpay share price!

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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