The Afterpay Ltd (ASX: APT) share price has gone up more than 10% over the last month. What's going to happen next to the buy now, pay later business?
The 2021 calendar year has been a volatile period so far for the business. In February 2021 it rose to around $160. By the middle of May 2021 it had fallen 47% to $84.50. But it has actually risen around 40% from that low.
The latest business insight investors have received was the FY21 third quarter update.
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Third quarter of FY21
Afterpay likes to regularly tell the market how much it is growing.
In the third quarter it said that it was delivering a strong operating performance across all regions with underlying sales, up 104% compared to the prior corresponding period. On a constant currency basis, underlying sales were 123% higher than the third quarter of FY20. The Australian dollar has strengthened compared to 2020.
Growth was particularly strong in the countries of the US and the UK, where underlying sales were up 211% and 277% respectively on a local currency basis.
Based on the FY21 third quarter performance, North America is now the largest contributor to underlying sales and outperformed the seasonally strong FY21 second quarter on a local currency basis (which includes Christmas).
The Afterpay share price is down 6% since releasing its FY21 third quarter numbers.
The month of March 2021 exceeded December 2020 and delivered the second highest monthly underlying sales ever recorded, with the US becoming the first region to record more than $1 billion of underlying sales in a single month.
Global active customers went up by 75% year on year to 14.6 million, with North America and the UK reaching 9.3 million and 1.8 million active customers respectively. Active merchants increased by 77% to 85,800.
The older cohorts of customers continue to shop more. The top 10% of global customers, on average, now transact 33 times per year. In the US it's 23 times per year, in the UK it's 29 times per year and in ANZ it is 62 times per year.
Underlying sales from the global 'Afterpay Day' sale increased 117% on the same period last year and was 36% higher than the August 2020 'Afterpay Day' sale.
Merchants with over $1.5 billion of total addressable online sales were live, integrating or signed in the EU, at the time of the announcement, after the completion of the Pagantis acquisition and launch of Clearpay across Spain, France and Italy in March 2021.
The business also said that merchant revenue margins remained firm and gross losses continued to remain below historical rates. Net transaction losses also remained low.
Is the Afterpay share price a buy?
There are very different opinions on the buy now, pay later businesses.
Citi has a neutral rating on the buy now, pay later business with a price target of $125.
Morgan Stanley thinks that Afterpay shares are a buy, with a price target of $145.
However, UBS has a sell rating on the Afterpay share price, with a price target of just $42. That suggest a possible decline of over 60% over the next 12 months if UBS is right.
