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Before You Invest - Afterpay | ASX Stock Review and A Look Back at Buy Now Pay Later Stocks - YouTube
Channel: The Healthy Investor
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Hey everyone, so in today’s video we’ll
take a look at the ASX stock Afterpay and
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review its inception, news, past performance
and the current environment to hopefully give
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you an understanding of the stock before you
decide to invest in it for good.
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I will try to present everything in a factual
and unbiased way because we want to leave
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emotions at the door when we make any investment
decisions.
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So is Buy Now Pay Later darling stock that’s
seen an 800% increase in its stock price still
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worth it Is it not too late to get in on the
action Well let’s jump right in.
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Afterpay was founded in January of 2015 by
Nicholas, who was managing an online jewellery
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store on ebay, and his then neighbour Anthony,
who was the executive director of an investment
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holdings company Guiness Peat at the time.
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The initial version of Afterpay was to give
retailers an online platform to manage their
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layby sales.
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If you don’t remember, layby was similar
to the buy now pay later service, but you
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only get the product AFTER you’ve paid all
the installments.
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Anyway Afterpay quickly partnered with a payments
system company called Touchcorp which was
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formerly owned by Anthony’s Guiness Peat
investment company that could process all
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of Afterpay’s payments, and with that, the
first use of Afterpay went live on a jewellery
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website called iceonline.com.au which still
has a big Afterpay logo on the front.
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Within 6 months, they managed to get 15 retailers
to use the payment system which is a remarkable
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feat for such a young company.
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With this continued momentum, and racking
up more and more retailers for another year
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before Afterpay was floated on the ASX in
April 2016 for… wait for it… $1 a share.
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Looking at that with the 2020 lens, it was
such a bargain back then, and don’t you
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wish you bought some back then.
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Even within the first 3 months of the float,
its price went up 150%.
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Let’s fast forward another year and Afterpay
managed to get contract deals with big retailers
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like Myer, Officeworks, Country Road, Super
Retail Group, BigCommerce and Big W. Throw
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in a partnership with Tyro Payments who provides
retailers with eftpos payment machines and
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Afterpay has pretty much set itself up to
be able to integrate with every retailer’s
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Point of Sale, even if they haven’t signed
contracts with them yet.
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While all of this happened, Afterpay’s share
price stayed pretty much the same for the
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next year, but that’s only until the announcement
of the Touchcorp and Afterpay merger was allowed
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by the court hearings.
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This was pretty much a given considering Afterpay
was expanding its market share exponentially
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but still relied completely on Touchcorp to
process all its transactions.
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So with that, in July of 2017, AFY closed
trading at $2.74 and TCH closed trading at
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$1.67 to form APT that we know today and began
trading again at $2.95.
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Afterpay’s momentum right through to August
2017 was very strong, more than doubling its
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customers in only 8 months to over a million
users, and 5 million transactions since it
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began.
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Which means customers are using it on average
5 times after signing up.
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This is important because it means that people
aren’t just using it once and ditching it.
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Now with 7200 retailers offering the service
on behalf of Afterpay, the company was able
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to produce 23 million dollars in merchant
fee revenue.
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But they weren’t done yet.
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Retail was only a small slice of the pie because
they had eyes on a new sector which was expected
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to be twice as big as retail.
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Travel.
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The first partnership to be revealed was Jetstar,
the budget airline of Qantas.
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This was big news because it set precedence
for airlines to open its gates for the buy
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now pay later market.
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And Afterpay stock price also rode this news
upwards.
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So naturally the next step was to target the
other budget airline Tigerair before moving
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onto the big guns, Virgin and Qantas.
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So in March of 2018, the announcement of the
now extinct Tigerair offering a Buy Now Pay
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Later option was made, in partnership with…
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Zip pay.
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Yeah, that wasn’t supposed to happen, and
the stock price took its first significant
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dip from $7.50 down to $5.50.
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This was only temporary though because the
strength of its retail arm was so strong,
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with merchant fee revenue increasing to 37
million, and the entrance of Afterpay for
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the US market was also announced soon after
so the stock price recovered quickly.
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This bull run was ended again 5 months later,
because Virgin Australia also signed with,
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you guessed it, Zip pay as well.
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But again the price dip was temporary because
of successes in the retail partnerships locally,
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and more overseas success in the US market
as well.
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Fast forward to 2019 and the strong economic
growth meant strong consumer spending which
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naturally aligns with increased earnings,
and therefore increasing stock price.
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The first half Financial Year Results of 2020
reports continued growth in Australia, with
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sales increasing to more than 3 billion dollars,
an increase of 55% from the year before.
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The US market also generated a massive 1.4
billion dollars in sales, which is a phenomenal
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455% increase from the year before, and the
user base already exceeding that of Australia’s.
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The early ventures in the UK market under
the brand Clearpay picked up a respectable
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200 million dollars in sales already with
over 6 hundred thousand users.
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Things were looking so good.
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But remember, this was in February 2020.
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And we all know what happens next.
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roll covid tape
On March 23rd at the height of the situation,
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the stock price reached as low as $8.90, but
that was when the economy recovery began.
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At first the recovery was in line with most
other stocks, right up until May 1st, because
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that's when a massive announcement was released.
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Tencent, one of the world’s largest video
game company, one of the world’s largest
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social media company, one of the world’s
largest venture capital and investment holding
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company had invested 300 million dollars to
buy a 5% stake in Afterpay.
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This was massive for the company because it
allows them to tap into the knowledge of the
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world’s most successful digital platform
and apply it to their own.
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And investors crammed in on the back of this
news to drive the stock price higher than
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it had ever been before.
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This was covered in all the news outlets and
happened at a time when new ASX investors
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were joining the stock market in record numbers.
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The stock price continued to rise on the back
of continued success in the US with 5 million
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active users, and in the UK with 1 million
active users equating to increased sales and
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revenue.
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But what about its competitors?
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Well it’s direct rival is easily Zip Pay
who has seen similar meteoric rises in their
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earnings and as a result its stock price.
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The story behind Zip is quite interesting
as well and probably needs a whole video to
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cover.
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The other smaller competitors in Australia
are Splitit, Sezzle, Openpay and most notably
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the Swedish company Klarna which has the backing
of CBA.
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Perhaps the goal for CBA is to make the Buy
Now Pay Later function integrate with their
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banking app, which may give Afterpay a run
for its money.
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Klarna is also the dominant Buy Now Pay Later
service in the UK.
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In the US, the biggest hurdle to Afterpay
is Shopify, which is almost a carbon copy
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of the 4 equal interest free installments
model that Afterpay uses.
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So as you can see, the Buy Now Pay Later sector
actually has very little barriers to entry
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and is very crowded.
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There’s no doubt that the competition will
be fierce and only one or two in each country
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will come out on top.
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Also, the biggest hurdle for all these companies
are the Credit Cards, which, when you think
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about it, are also buy now pay later cards
which have been around for much much longer.
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And if someone already has a credit card which
offers points for spending, why would they
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use Afterpay It would make no sense to use
both either since they are paying an annual
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fee and need to make that back through the
rewards program.
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So what does the future hold for Afterpay
Whilst the growth and expansion into new markets
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is very promising, the market is really only
limited to people who 1) Don’t have a Credit
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Card.
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2) Have minimal savings and need to wait for
paychecks.
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And 3) Are technologically savvy.
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This really points to one group; the millennials,
who, by Afterpay’s own financial reports,
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make up the biggest proportion of users.
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Since the concept is still quite new, the
novelty is there for all the millennials signing
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up in recent years.
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Afterpay has been called the ASX tech darling
stock so many times but how long will that
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last, because it's very possible that this
concept is likely going to wear off and hit
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a plateau eventually.
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When will that be Well, we can only guess
now, find out later.
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Thanks for watching the first of these types
of videos.
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I tried not to go into the financial figures
and capital raises too much because there
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are already so many videos that do that already.
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So anyway, I already can’t wait to make
the next one about an ASX company so definitely
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hit that subscribe button so you get notified
as soon as I release one.
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And leave a comment if you want to see a video
on your favourite company and I might just
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choose it on the next release.
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Thanks again for watching and I’ll see you
in the next video.
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