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Will Afterpay Hit A Wall When Gov Subsidies End?

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Afterpay’s share price has skyrocketed in recent months, hitting a record high of $73.50 last Thursday, compared to $8.90 in March, representing an increase of 726%.

However, fund managers and analysts have stated that ‘buy now, pay later’ stocks may hit a wall come September, when the government ends its stimulus packages.

According to the Sydney Morning Herald, this trend could apply to Afterpay, Zip and Splitit, as they would be significantly impacted by any dents in consumer spending.

“Tobias Yao, fund manager at Afterpay shareholder Wilson Asset Management, believes the forthcoming ‘fiscal cliff’ will be a significant test for the whole buy now, pay later sector, many of which have never piloted their business through an economic downturn,” Sydney Morning Herald wrote.

Afterpay ASX 13.07.2020

Nevertheless, Yao stated that if Afterpay can navigate the next six months without spikes in bad debts it will lead to a further re-rate of the share price.

So far, Afterpay has fared well during the COVID-19 pandemic. In the fourth quarter of FY20 Afterpay’s underlying sales rose by 127%, and over the whole financial year sales more than doubled to $11.1 billion.

The company has also undertaken capital raising of $1 billion to fund its overseas expansion plans.

Afterpay partnered with Qantas in July, allowing customers to earn Qantas rewards points

Zip and Splitit have also soared during the COVID-19 crisis.

Zip’s shares have risen by approximately 463% since March to hit $7.24. In May Zip reported another strong month during COVID, with monthly revenues up 78% year-on-year at $15.6 million.

Starting from a lower base, Splitit’s share price has increased by some 575% since March to $1.62. The company witnessed record growth in the second quarter of the year, up 260% year-on-year.

“Zip is watching closely how September’s end of stimulus plays out, and we support any assistance the government might provide to those industries that need more help,” Zip’s Co-Founder Peter Gray told the Sydney Morning Herald.

“Looking out into the second half of 2020, we watch with interest how the Australian Federal Government approaches the issue of any further targeted stimulus as the JobKeeper program nears its end… There is no doubt this stimulus is a key reason consumer spending has held up as well as it has to date,” wrote Fund manager Ophir Asset Management, which has holdings in Afterpay.

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