Should investors be bullish or bearish about the Afterpay Ltd (ASX:APT) share price right now? It has fallen heavily in recent weeks.
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The Afterpay Ltd (ASX: APT) share price has been falling in recent weeks, it’s actually down by around 27% over the last month. That’s a pretty steep decline in a fairly short amount of time.
What do brokers think of the Afterpay share price?
Different brokers have different views of Afterpay shares. UBS doesn’t have much expectation for the Afterpay share over the next year – it has a price target of $36.
UBS thinks that a problem for Afterpay is the growing amount of competition in the space from large players such as Commonwealth Bank of Australia (ASX: CBA) which could lead to problems relating to the no surcharge rules.
Merchants currently can’t pass on those costs to customers, but CBA’s merchant fee (and PayPal’s) is actually lower than what Afterpay charges.
Ord Minnett has a price target of $150 on Afterpay, with the broker being pleased by the continuing northern hemisphere growth.
Macquarie Group Ltd (ASX: MQG) brokers have set a price target of $140 for the buy now, pay later leader. However, it noted that the rate of growth in Afterpay’s recent half-year result for FY21 is slower than other recent reports.
How did reporting season go?
Well, the Afterpay share price has been falling since the report’s release, but there was plenty of growth reported.
Customer numbers and merchants continue to grow significantly – merchants went up 73% to 74,700 and active customers grew by 80% to 13.1 million.
The buy now, pay later company continues to see its underlying sales roughly double each report. In the first six months of FY21, underlying sales grew 106% to $9.8 billion. On a constant currency basis, underlying sales would have gone up 112% to $10.1 billion.
Afterpay’s income from merchants grew by 108% to $374.2 million, or 114% in constant currency terms.
The company’s gross loss as a percentage of underlying sales improved by 0.3 percentage points to 0.7%, whilst the net transaction margin as a percentage of underlying sales improved by 0.1 percentage point to 2.2%. This led to the net transaction margin growing by 110% to $213.9 million.
Earnings before interest, tax, depreciation and amortisation (EBITDA) before significant items jumped 521% to $47.9 million.
What is management doing to grow profit and the Afterpay share price?
Afterpay is focused on growth in a number of different areas, particularly when it comes to global growth.
One area that Afterpay is looking to grow in is Europe with the completion of its Pagantis acquisition which will now occur after regulatory approval being granted by the Bank of Spain.
Afterpay has revealed that preparation into the launch of Spain, France and Italy is currently underway with over $1 billion global merchants in the process of contracting.
It’s also looking at Asia as the next stage of growth after establishing a base in Singapore after the acquisition of EmpatKali in August 2020 to drive the potential expansion into South East Asia.
Afterpay continues to see that its longer-term customers use the buy now, pay later service more and more, which can lead to higher margins with repeat usage.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.