The Afterpay Ltd (ASX: APT) share price is falling in trade today, currently down 3.3% at $148.38. This is despite the recent buy now, pay later (BNPL) excitement in other shares including Zip Co Ltd (ASX: Z1P), Fatfish Group Ltd (ASX: FFG), and IOUpay Ltd (ASX: IOU).
With no news from the company today, we look at what other forces might be at play.
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Catalysts for today's Afterpay share price selling
Could recent run-ups in BNPL competitors stem from an interest in finding the next big player? Particularly in cases like Fatfish and IOUpay, as they target new developing markets for the sector in Southeast Asia. The potential returns from investing at an early stage might have Afterpay shareholders taking profit and reallocating to these opportunities.
Alternatively, the case could be made that the tech sector is looking a bit frothy. Technology shares have outperformed through COVID-19 and the global market rebound.
Many investors found solace in companies with limited exposure to physical forms of business – in addition to the large role technology had in handling the events of the pandemic. However, some may perceive evaluations as stretched at this point, even when accounting for growth.
This perception of overvalued in many tech shares, including Afterpay, might lead investors to turn to value investing. That means blue-chip shares that look undervalued based on their earnings, often reflected in the price-to-earnings (P/E) ratio.
Is the growth engine still chugging along?
In a short timeframe of nearly 4 years, Afterpay has managed to grow like wildflowers. Merchants, customers, revenue – all the metrics have been humming along like a fine-tuned engine. For instance, revenue has rocketed from $22.906 million in 2017 to $476.555 million in 2020.
However, 2021 is a world away from 2017. Indeed, Afterpay now has countless contenders all wanting a piece of the BNPL pie. This might have investors nervous considering the company still hasn't turned a profit. The question weighing on the minds of some is, how much profit will be in it, given the saturation of competitors?
Afyterpay's recent sales in the United States indicate strong sales are still occurring for the company. The announcement posted on 2 December 2020 highlighted the company exceeding $2 billion of global sales in a single month. Furthermore, the US made up $1 billion of these sales, increasing 186% from the prior year.
The growth story will be clarified on 25 February, when the company is slated to release its half-year results for FY21.
