Afterpay earnings watch: 5 things to consider before FY19 results

When will Afterpay announce its results?

APT-AU is set to announce its 2019 full-year results this Wednesday, August 28.

A conference call for investors will be held on the same day, at 10:30 AEST.

Core financial metrics in focus

APT-AU, true to the name of a high-flying tech company, exhibits the kind of lofty growth metrics that makes it a prime target of sensationalist news stories and rampart investor enthusiasm.

A glance at Afterpay’s core operating metrics, as reported in the company’s May investor presentation, illustrates such a view perfectly.

According to this presentation and during the most recent period, the company saw underlying sales rise 143% to A$4.7 billion, active customers climb 115% to 4.3 million and in-store shop fronts grow 132% to 23,100.

In fact, it was only active merchant numbers that didn’t at least double, they grew at the 'lowly' rate of 91%, coming in at 3,300.

More traditional financial metrics look slightly less impressive, though Afterpay continues to tout explosive revenue growth.

On the top-line, Afterpay reported 2019 first-half total income of A$112 million on earnings (EBITDA) of A$11.5 million – when excluding significant items.

On an absolute basis however, Afterpay still recorded a statutory loss in 1H19 of A$22.2 million.

Indeed, investors and analysts both seem undeterred by such facts: as Afterpay's 'growth story' remains the top priority.

Even so, from a valuation perspective and on a price to sales basis, Afterpay currently trades at a heady multiple of 34.12, according to Bloomberg Data.

Buy now pay later competition intensifies

Afterpay’s explosive growth figures have attracted a number of high-quality competitors to the buy now pay later space (BNPL).

In saying that and in Australia at least, Afterpay remains the largest player by far – with a market capitalisation of A$6.18 billion.

Just recently for example, Sezzle Inc (ASX: SZL), a US & Canadian oriented BNPL provider listed on the ASX.

As we previously reported, Sezzle listed to much fanfare, with its share price rising a massive 78% in the first week as a public company alone.

VISA has also announced plans to enter the instalment-based payments space by early 2020, a move which initially saw Afterpay's share price fall in response.

Finally though, Zip (ASX: Z1P) may be Afterpay’s largest Australian-based rival, counting 1.3 million customers as part of its ecosystem, laying claim to a differentiated product offering and boasting a market capitalisation of A$1.13 billion.

Just like Afterpay, Zip has witnessed explosive growth in the last year, as the BNPL space gains intense popularity (and faces increased levels of scrutiny).

Since January, the company has seen its share price rise 192%.

More recently the company announced the acquisition of PartPay – a clear indication that Zip is proactively pursuing growth on a global scale.

How Afterpay and Afterpay’s investors will ultimately respond to this increased competition in the medium-term however – is anyone’s guess.

Will Afterpay's share price continue to rise?

On the basis of analyst estimates alone, there is the suggestion that Afterpay’s share price still has potential to run up higher.

According to Bloomberg Data, the average analyst 12-month price target for Afterpay (ASX: APT) is A$29.47 per share.

Adding to this, of these eight analysts covering the company: six rate it a buy while only two rate it a hold. Ultimately, it seems that Afterpay’s lack of profit and high valuation hasn’t stopped investors from maintaining a bullish outlook on the young company.

Ord Minnett for example has a price target of A$32.00 and a buy rating on the stock. Wilsons, by comparison rates Afterpay a hold with a 12-month price target of just A$21.85 per share on the tech darling

At Afterpay’s closing price of A$24.54 per share last Friday, these two price targets would imply potential share price movements of +30.39% and -10.9%, respectively.

A brief price history

Investors, in-step with analysts’ optimistic outlook, have bid APT-AU’s share price up considerably since the tech darling listed in June 2017.

In the short-term and year-to-date, Afterpay’s share price has risen a massive 104%; far outpacing the gains of Australia’s blue-chip index.

Over the longer-term and since listing on the ASX, Afterpay has seen its share price rise a massive 688%.

Of course, given Afterpay’s high valuation and its already impressive run, it will be interesting to see how both analysts and investors respond when the high-flying tech company releases its 2019 full-year results to the market next Wednesday, August 28.

Ultimately, those gains I just pointed to have come with extreme volatility, as regulatory concerns, an AUSTRAC investigation and increased competition have all weighed on Afterpay’s share price – at one time or another, in the last couple of years.