Afterpay (ASX:APT) share price up 29% after takeover & FY 2021 update

It has been a great day for Afterpay shares…

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The Afterpay Ltd (ASX: APT) share price is racing higher today after agreeing to be acquired by US payments giant Square. In morning trade, the buy now pay later (BNPL) provider’s shares are up 29% to $125.00.

But that wasn’t the only thing that Afterpay announced today. It also released a trading update along with its acquisition announcement.

How is Afterpay performing?

Afterpay continued its strong form during the fourth quarter of FY 2021. This may go some way to explaining why Square saw enough value in the current Afterpay share price to launch a takeover approach.

A strong finish to the year led to Afterpay reporting FY 2021 underlying sales of $21.1 billion or $22.4 billion in constant currency. This represents a 90% and 102% increase, respectively, over FY 2020’s underlying sales.

The key driver of its growth was its North America business, which reported a 148% increase in underlying sales to $9.8 billion. Its growth was even stronger in constant currency, with underlying sales growing 177% to $11.1 billion. This means its North America business is now its largest business.

This was supported by its ANZ business, which reported a 44% increase in underlying sales to $9.4 billion, and its Clearpay business, which delivered a 227% jump in underlying sales to $1.8 billion.

This ultimately led to Afterpay reporting a 78% increase in group revenue to $925 million. From this, merchant revenue represented $822 million, which is up 90% year on year. And finally, unaudited gross profit came in at $675 million for the year, up 75% on FY 2020’s gross profit.

What were the key drivers of this growth?

Driving Afterpay’s growth in FY 2021 were further strong increases in active customers, merchants, and repeat purchases. This was supported by its continued expansion internationally and its in-store card offering.

In respect to customer numbers, the company’s global active customers reached 16.2 million at the end of FY 2021. This was up 63% year on year. Once again, the North America business was the highlight, growing its active customers by 88% to 10.5 million. Over in the ANZ region its growth has slowed, with active customers increasing a modest 8% to 3.6 million. Whereas in the UK/Europe, Clearpay doubled its active customers to 2.1 million.

Another positive which may have supported Square’s view that the Afterpay share price offered value for money was its merchant revenue margin. The release explains that Afterpay’s merchant revenue margin remained firm during FY 2021 and was in line with what was achieved in FY 2020. This is despite increasing competition in the BNPL space.

Afterpay share price performance

Prior to today, the Afterpay share price was uncharacteristically underperforming and trading lower year to date. However, following today’s gain, the company’s shares are now up 5% in 2021.

But it may not stop there. Given that the deal is an all-scrip one, there is no set acquisition price. This means that if Afterpay’s strong operating performance continues, US investors may believe its value is increasing and bid the Square stock higher to reflect this.

This will then mean the value of the offer will increase in line with the Square share price. Which is likely to drive the Afterpay share price higher.

Should you invest $1,000 in Afterpay right now?

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO. The Motley Fool Australia owns shares of and has recommended 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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