Afterpay share price: Top 10 things we learnt from the Q1 FY21 update

Buy now pay later (BNPL) darling Afterpay (ASX: APT) today released its first quarter FY21 business update to the market. With the stock bid higher off the back of this release, below we look at the top 10 things we learnt from the Q1 business update.

Underlying sales momentum remains strong

For the quarter ending September 30 – Q1 FY21 – Afterpay again posted strong underlying sales growth. Here, underlying sales hit $4.1bn, up from $1.9bn in Q1 FY20, implying an impressive year-over-year growth rate of 115%. The company said 'Momentum towards the end of FY20 continued into' the first quarter of fiscal 2021, with Afterpay’s Q1 underlying sales run-rate now standing at $16.4bn.

For reference, the company is targeting underlying sales of $20bn by 2022.

Customers continue to flock to Afterpay

Afterpay’s customer-centric design continues to see it win new users at a rapid click, with the company reporting a 98% global increase in active users – taking APT's total customer base to 11.2m. Broken down geographically: 3.4m of APT’s customers are from Australia (ANZ), 6.5m from the US and 1.2m in the UK.

Major retailers join the party

In the first quarter of FY21 the company recorded a 70% increase in active merchants, taking the total merchants on the Afterpay platform to 63.8k. Broken down geographically: 48.0k of APT’s merchants remain located in ANZ, 13.9k in the US and 1.9k in the UK.

Maybe more importantly, the company said a number of major retailers joined the APT ecosystem in Q1, with it being noted that these retailers boasted over $10bn in total addressable online sales. The impact of these enterprise partners have already begun to be felt, with Afterpay seeing an 18% uptick in the daily average number of new customers in October, when compared to the FY21 Q1 average.

US growth continues to outperform

On a more granular level, the US – key to the Afterpay growth narrative – continues to notch up triple digit growth figures. Underlying sales in the US surged 229% to $1.6bn in Q1; active customers as noted above hit 6.5m, with some 12.5k new customers joining the platform each day – implying a growth rate of 175%; while active merchants hit 13.9k, equating to a growth rate of 159%.

Where US growth isn’t as impressive

While growth across a number of key operational metrics continues to impress, one metric that the US lags is frequency of use. APT today revealed that on average, the top 10% of customers in ANZ transacted with APT a staggering 54 times annually – across 26 merchants and 11 different verticals. In the US those frequency metrics are less impressive, with the top 10% of US customers transacting with APT on average 19 times annually.

The company did however point out that 'newer international markets is showing similar trends at similar points in the ANZ life cycle.'

Investors were impressed by what they saw

The Afterpay share price was bid higher off the back of today's release, rising 7.63% or $7.32 in the opening hour of trade to again break the $100 handle. At the time of writing APT traded at $103.30 – with the stock up over 200% since January.

The product continues to draw in millennials

The company today provided more colour around the demographics of its users – unsurprisingly, revealing that the majority of its customers were millennials. On a global scale, 48% of APT's customers are millennials, 25% Gen Z and just 21% Gen X. The bull case here, as Afterpay’s management generously highlighted, entails that as the wealth of these younger generations increases so too may their retail spending. That is:

'As millennials and Gen Z customer reach their peak earning years over the next 10 years, the percentage of total retail spend globally coming from these generations will increase significantly.'

Unaudited margins remain steady

Positively, the company said that its merchant revenue margins 'remained firm' while its net transaction margins 'have been maintained' across the first quarter of fiscal 2021. These figures both remain unaudited and the company did not provide any further details on them within the Q1 business update.

Customer defaults remain low

Despite global uncertainty as a result of the coronavirus pandemic, Afterpay said its 'customer default payments' remained below historical levels in the first quarter – across all geographic regions. As a consequence of this, Afterpay's Net Transaction Losses also remained low in the quarter.

International expansion continues

Since its inception, Afterpay never seemed content with just being an Australian-centric company. With a its US and UK expansion already well underway, the company reiterated its European and South East Asian (including Indonesia) expansion plans as part of its Q1 business update – noting that its recent Pagantis acquisition provides the company with 'a license to operate in Spain, France, Italy and Portugal.'

Though the company didn’t provide underlying sales, user or merchant statistics, it said that solid progress has been made on its Canadian launch, with the company already onboarding a handful of large retailers in the region, including Aritzia, Lush, Ardene and Goop.

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