The Afterpay Ltd (ASX:APT) share price has jumped around 25% this month. Is the buy now, pay later business a buy?
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Is the Afterpay Ltd (ASX: APT) share price a buy after already rising approximately 25% in April 2021 so far? The buy now, pay later business is getting a lot of investor attention.
What is happening to the Afterpay share price?
In the middle of February 2021, the market started going through some jitters due to inflation and interest rate worries. The Afterpay share price dropped by around a third to $101 at the end of March 2021.
But Afterpay has been making a recovery since then.
One of the most helpful things for the resurgence was a media update by the company on 1 April 2021 when it announced results and consumer shopping trends for its bi-annual Afterpay Day sale – the first time it included brick and mortar shopping.
Afterpay revealed that the US sale helped new active customers grow by 35% compared to Afterpay Day in August 2020.
The buy now, pay later business said that traffic to Afterpay’s brand partners was also strong. It sent nearly six million referrals to global merchants from its shop directory during the sale’s duration. Some of the most popular purchases were from Crocs, Nike, Fenty Beauty, Ulta Beauty and UGG.
The buy now, pay later business said it has more than 16 million US customers and over 75,000 global retail partners. It also said that it has a strong pipeline of new merchants continuing to launch in 2021. In December 2020, Afterpay referred more than 40 million customers to its merchant partners through its shop directory.
The Afterpay share price has been rising since this update.
FY21 half-year result
The first six months of the FY21 result was another period of triple digit growth.
Underlying sales went up 106% to $9.8 billion. Afterpay income went up by 108%.
Customer and merchant growth remained strong. Customer numbers rose by 80% to 13.1 million and merchant numbers rose by 73% to 74,700.
The income growth led to the net transaction margin growing 110% to $213.9 million. There was an increase in the net transaction margin as a percentage of underlying sales from 2.1% to 2.2%.
In terms of an operating profitability metric, Afterpay reported that its underlying earnings before interest, tax, depreciation and amortisation (EBITDA) surged 521% to $47.9 million.
Whilst there was the expected growth in ANZ and the US, there were some promising developments in two other markets.
Canada continues to ramp up both in country and cross border. The current annualised underlying sales run rate is around $90 million.
In the UK, it achieved 288% growth of underlying sales to $0.8 billion. The number of active merchants went up 812% and the contribution from returning customers increased from 87% to 90% at 31 December 2020.
Is the Afterpay share price a buy?
There’s mixed views on Afterpay.
Broker UBS rates Afterpay shares as a sell, with a price target of $36. It’s worried about more competition in the space, such as from Commonwealth Bank of Australia (ASX: CBA). UBS is concerned about the rule changing where merchants are not currently allowed to pass on costs to customers. Regulations changing could be bad news for Afterpay.
However, Morgan Stanley has a buy rating on Afterpay with a price target of $149, with the ongoing adoption of Afterpay’s services as well as expansion in other non-retail sectors.
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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.