Stock market darling Afterpay sees losses blow out to $156million - here's what it means if you're holding shares or thinking of investing
Stock market darling Afterpay has seen its losses blow out to $156million despite a massive share market price surge since the start of the pandemic.
The buy now, pay later giant, launched by Nick Molnar and Anthony Eisen in 2014, has been a phenomenal share market success during a time of uncertainty with its price surging from just $8.80 in March 2020 to $152 as of February 2021.
Afterpay's share price fell back below $100 in May but climbed again on August 3 - from $96.66 to $127.85 in one day - after Twitter founder Jack Dorsey's Square group announced it would buy the business.
The takeover of the $39billion company is the biggest in Australian corporate history.
Stock market darling Afterpay has seen its losses blow out to $156million or by 689 per cent despite a massive share market price surge since the start of the pandemic. The buy now, pay later giant, launched by Nick Molnar (pictured with wife Gabrielle) and Anthony Eisen in 2014, has had phenomenal share market success during a time of uncertainty with its price surging from just $8.80 in March 2020 to $152 as of February 2021
Just three weeks after that deal was announced, Afterpay on Wednesday revealed the true state of its finances for a company that has never made an annual profit as it aims for phenomenal growth to aggressively maintain its market share.
The after tax losses attributable to ordinary shareholders surged by 689 per cent, or 7.9 times, to $156.3million in the year to June 30, compared with $19.8million in the 2019-20 financial year, its annual report said.
This was despite a 78 per cent surge in its total income to $924.7million from $519.2million.
The bad news did little to dent Afterpay's share price, which was down 0.7 per cent to $134.15 shortly before midday, Sydney time, on Wednesday.
That's because Square had already agreed to buy Afterpay for $39billlion so it could be combined into its Seller, Cash app and music streaming service Tidal.
IG market analyst Kyle Rodda said Afterpay's fortunes were more tied to Square's share price in the US than the financial fundamentals of the company in Australia.
'For the ordinary shareholder, if Square shares increase it means that the deal you're getting for your Afterpay shares improves,' he told Daily Mail Australia.
'Afterpay shares are very much tied to the performance of Square almost independent in many ways of its fundamental performance like we saw today with the results.'
The share price fell back below $100 in May but climbed again on August 3 - from $96.66 to $127.85 in one day - after Twitter founder Jack Dorsey's Square group announced it would be buying Afterpay
The news on losses had done little to dampen the share price because investors cared more about how a young company would spend big to aggressively maintain its market share, in the face of competition from PayPal to the Commonwealth Bank who also have buy now, pay later apps.
'They're just pouring money as much as they can into the business and the business's infrastructure to ensure that it can continue to grow at the rate it has over the last couple of years,' Mr Rodda said.
'The business is young, it's immature, it's growing quite quickly.
'The kind of volatility that you get in earnings can be quite high just because a lot of these trends are still rather unknown, a lot of what the business is doing is hard to forecast.'
The losses attributable to ordinary shareholders surged by 689 per cent to $156.3million in the year to June 30, compared with $19.8million in the 2019-20 financial year, its annual report said
The bad news did little to dent Afterpay's share price with down 0.7 per cent to $134.15 shortly before midday, Sydney time, on Wednesday. That's because Square had already agreed to buy Afterpay for $39billlion so it could be combined into its Seller, Cash app and Tidal services
Lockdowns in Sydney and Melbourne are another cause for uncertainty with Afterpay making its margins from charging smaller retailers merchant fees so consumers can take possession of the product and pay it off in four equal installments.
They are not charged interest but are hit with late fees.
Mr Rodda said many of Afterpay's wholesale clients were small bricks-and-mortar retailers who did not have an online presence.
'A lot of businesses that use Afterpay, they mightn't have a great e-commerce presence, a lot of small retailers for example would be an impact to the company,' he said.
'As far as investors are concerned, they're interested in how the company will grow and expand its market share and that's why these sort of short-term headwinds haven't been so significant for the company's share price in a situation of lockdowns.'
Square is yet to decide if it will pursue a dual listing so Afterpay is on both the Australian Securities Exchange and the American Nasdaq tech exchange.