Afterpay nailing its offshore growth strategy

Andrew Mitchell

Ophir Asset Management

There was a lot to like for Afterpay investors today as the share price surged following the announcement of the company’s FY 2019 result, with strong momentum in all geographies.

Underlying sales in Australia and New Zealand almost doubled for FY 2019 to $4.3 billion showing that there is still strong growth in the local business. 

Impressive growth in the US and UK

However, it was the news that the company’s operating metrics continued to accelerate in its key offshore growth markets (i.e. the US and UK) that gives us the most excitement about the long term growth trajectory for the business.

The US is scaling faster than the Australian business did, both in terms of underlying sales and return customer spend. Pleasingly merchant margins in the US are now in line with Australia which will underpin long-term profitability.

The news from the UK was even more impressive and with the Clearpay offering, the company is outpacing the growth seen in the early stages of the US, with active users in the UK already over 200,000. This is a fantastic result when you remember that it only launched in the UK 15 weeks ago.

Afterpay’s results further illustrated just how immense the company’s growth opportunity is in both the US and UK. Customer repeat usage in Australia continues to increase and actually improve over time. For example, customers who have been using the platform for more than 1 year are transacting more than 4 times per annum but customers who have been using the platform for more than 3 years are transacting more than 20 times per annum. 

Early experiences in the US indicate that this is not just a local phenomenon with US customers also transacting more frequently the longer they use the platform.

Meeting competition with innovation

Competition in the rapidly growing ‘buy now pay later’ segment is intensifying and Afterpay continues to invest in its product innovation pipeline, expanding the services that it offers to merchants and customers. 

It has successfully piloted a ‘variable payment up front’ capability to allow users to pay extra upfront after receiving feedback from both their retail partners and their customers. This has led to higher approvals, higher transaction values but importantly less risk. The company has also entered a strategic partnership with Visa in the US which should enhance its service offering and support its growth in the US market.

In summary

For us, today’s announcement demonstrated Afterpay management’s continued focus on execution discipline and the impressive progress the company is making in its offshore growth strategy.


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Andrew Mitchell
Director and Portfolio Manager
Ophir Asset Management

Andrew has over 15 years’ experience in portfolio management of listed companies, stockbroking and economic analysis. Prior to co-founding Ophir, Andrew worked from 2007 to 2011 as a portfolio manager at Paradice Investment Management.

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