Afterpay VS Zip share price: the analyst outlook in focus

BNPL remains the new ‘it’ market

In 2020, Afterpay (APT) and Zip (Z1P) both continued to deliver stellar growth across all of their key operating metrics. Investors, seizing upon a narrative that perhaps sees buy now pay later companies replacing credit cards have bid these stocks to stratospheric heights in response.

Indeed, since 28 July, Zip has seen its share price surge 44%, OpenPay has seen its stock rise 27%, Afterpay has gained 29% and Sezzle has skyrocketed 53%.

With such fervent speculating, the ASX-listed BNPL cohort has come to trade on a set of nose-bleed multiples with potentially even loftier expectations. Some, such as UBS, remain adamant that the market has run well ahead of itself: reiterating their Sell rating and $28.25 price target on Afterpay in the wake of the company’s FY20 release.

Yet such scepticism is few and far between: the market as a whole remains bullish and so do analysts – with APT carrying an Overweight rating, on average, according to the Wall Street Journal.

It’s not hard to see how analysts came to that conclusion – given Afterpay’s growth trajectory – but with the company trading at 46x FY20 sales, according to Bloomberg data, there appears little room for error.

Afterpay share price continues to climb year-to-date

Of course, those critical of Afterpay on valuation grounds, will often be met with an argument along the lines of: ‘the company will grow into its valuation’. Afterpay’s market leading status will also invariably be mentioned.

To be sure, Afterpay’s FY20 results did indeed exhibit its market leading position, with the company, on a year-over-year basis reporting:

• Underlying sales of $11.1 billion, up 112%
• 9.9 million active users and 55.4 thousand active merchants
• Revenue of $519.2 million, up 97% and earnings (EBITDA) of $44.4 million, up 73%
• A net transaction margin of 2.3%

Ord Minnett analysts bumped up their price target in the wake of this release, from $76.70 to $105.00 and said:

‘APT will continue to benefit from the rapid acceleration in ecommerce as well as the growing appetite for micro instalments as a way for consumers to fund more of their discretionary purchases – at the cost of traditional credit providers, notably credit cards.’

Elsewhere, Morgan Stanley retained their Overweight rating and reaffirmed their $106.00 price target; while Macquarie remained more measured, outlining a $70 price target and Neutral rating for APT.

YTD APT is up 189%

Like Afterpay, momentum remains behind the Zip share price

By comparison to Afterpay, Zip also delivered a strong set of FY20 results, with the company, on a year-over-year basis reporting:

• Full-year transaction volume of $2.1 billion, up 87%
• Revenues of $161.0 million, up 91%
• Cash earnings (EBITDA) of $3.5 million
• 2.1 million customers and 24,500 partnerships in the Zip ecosystem

Though Zip bears less analysts coverage than Afterpay, RBC analysts reaffirmed their Outperform rating and price target (PT) of $7.00 per share on the stock, while arguing:

‘Improved momentum in QuadPay and increasing success in onboarding larger enterprise merchants is a positive, in addition to the Zip Biz update, as Zip partners with eBay, Zip gains access to a sizable customer base and secures U$100m debt funding to grow the segment.’

Elsewhere, Shaw & Partners currently has a Buy rating and $10.00 price target on Zip.

YTD Zip is up 150%.

What are your thoughts on Afterpay and Zip...

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