Afterpay’s Big Fall

One of Australia’s tech darlings in AfterPay which has seen extremely high growth has suffered one of the biggest losses heading back towards a 2 year low.

On Wednesday the 18 March the stock took a 33% dive, which I mean 33% jeez.. Now I’ll be honest I haven’t been following the stock as closely as I had in the past when I swing traded them. So having had a quick look in the market to see what’s going on I thought I’d cover the fall of APT.


So let’s look at the rise of APT, 2 years ago it was $5.45 a share and of course this is when business was domestic and things were starting to pick up and people were slowly becoming familiar with the brand and service because ‘buy now pay later’ has not been hugely popular before then and took Australia by storm by obtaining so many partnering retailers to the point now they have 43,200 active merchants globally…

That’s a lot of stores to get the name in front of customers and familiar with the service of Afterpay. And the great thing, which I think is part of Afterpay’s winning strategy is in it’s name. It literally describes the service unlike zippay, sezzle or some of the other ones overseas. So it’s not hard to click or ask about it in person with some preconceived notion of how the service works.

Anywho with the news of their expansion in the US is where we see things pick up quite drastically in mid 2018 and we can see the share price went up from there to $19 at it’s peak.. then we see a drop off in the second half of 2018 which is when I had lots of money in it.. refer to this video here.

The shares went down to $11 due to a parliamentary enquiry into the service and whether APT was providing loans or marginal credit which would place them under some more stringent regulation. During this time I remember there was so much fear regarding possibly new laws that could stop the growth of the service. But the more I saw Nick the CEO at the time in Australia put so much attention and transparency in offering parliament all they needed that I was put at ease.

So after that all passed we saw the stock rise again, quite drastically with their expansion in the US and UK working out quite well. I sold out at $25 thinking there’s no way it would shoot to $30 but well…. It went all the way to a high of $41.14 around Feb 2020, which if I kept my money in oh boy seriously would not have to work and take a long holiday…

Now from it’s peak it’s taken massive dives in the past year, where’s all this come from?

Considering all their top line metrics were positive in terms of merchant sales and customer numbers, the operating cost is extremely high as they look to expand at scale to the US, UK and Canada.

This was reflected in Goldman Sachs report who downgraded the valuation for APT.

If we look at their costs we have an increase from 20M to 36M in talent acquisition to fund their expansion, which is an increase of 72% and then a spend of $32M in marketing and overall an increase of $48M in operating expenses. All of which was done in order to optimise their retailers and increase the funnel in customers, which kind of creates a win win situation for both APT and the retailer in getting more customers.


So with the increased expenses, this is obviously going to affect cashflow and for APT they’re well in the red with the expansion, which I mean nothing new. Everyone had been buying in for the future valuation of the company.

It also got into trouble and has come to a settlement of refunding $1.5M to users of the service because they were accused of offering illegal loans without a licence. The whole premise was that APT said it was not offering illegal loans, but was a consumer credit sale product, which was scrutinised in Aus too so I’ll leave it at that.

Some more things to pay is not a good thing for their operating cashflow which is not too good.

The final punch is that the CV has stopped people from spending and this obviously has an effect on growth, especially if people aren’t able to work and therefore have no means to spend, which ultimately affects the growth APT put so much money into.

What’s important to look at is the overall trend of payment services included the old dogs Mastercard and VISA who have also taken a beating for the same reason. Now before everyone freaks out and goes out to buy more TP, I want to remind all investors that the trend heading into the future is going to be cashless payments, with more cash being printed no one is going to carry around a large amount of cash.


That’s all from me guys, stay safe and catch yah :)

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