Afterpay on the defensive after enormous share price drop

Afterpay on the defensive after enormous share price drop

The S&P/ASX All Technology Index has fallen much harder than the market overall since Black Monday, and few companies embody this rapid drop in sentiment as much as buy-now-pay-later darling Afterpay (ASX: APT).

The stock has lost two thirds of its value since Monday 9 March, before which it was trading at $32.94 and a whopping $40.50 on 19 February.

Following a steady decline as investors grow wary about retail spending and companies that are not yet profitable, Afterpay's share price dropped by more than 30 per cent just yesterday and is down again 17 per cent today at $10.58.

This means what was one of the most exciting stocks on the share market - forming part of the so-called WAAAX quintet with Wisetech, Altium, Appen and Xero - has lost all of its gains since mid-2018.

In response, co-founder and CEO Anthony Eisen (pictured left with co-founder Nick Molnar) wrote a letter to shareholders this morning reiterating the strength of Afterpay's business model, balance sheet and customer base

He claims these create "a level of protection in times of economic uncertainty".

"We advise that we have not seen a material impact on our business activity and timing of instalment repayments or transaction losses to date," says Eisen.

He notes average outstanding balances are low with "no material concentration" in the portfolio from a merchant or customer perspective, while Afterpay also has cash of $402.5 million in its balance sheet and $1.09 billion worth of warehouse facilities in place with major financial institutions.

Eisen says this available debt gives Afterpay the capacity to grow underlying sales by an additional $15 billion above its second quarter run rate of more than $11 billion.

"These are committed facilities and are not subject to traditional debt facility covenants," he explains.

When it comes to Covid-19 uncertainty, the company is pressing ahead with its Afterpay Day today and tomorrow, following encouragement by its retail partners.

"We believe it is important that we continue to support our merchants who are rapidly looking to increase their online exposure in the current environment and will redirect a portion of our existing budgeted marketing spend for this purpose.

"The majority of Afterpay's underlying sales (>75 per cent) are generated from online transactions.

"We have asked our employees to work from home in order to ensure their health and safety over the coming weeks and months. This has occurred seamlessly with no disruption to our service."

Struggles elsewhere in tech

Investors are yet to be swayed by these reassurances, and its a similar story for most technology stocks on the ASX. The XTX index has fallen 37 per cent since its launch on 24 February, whereas the ASX200 has dropped 28 per cent since then.

Other tech companies that are much earlier on in their journeys are also struggling in the current environment.

Fastbrick Robotics (ASX: FBR) announced yesterday that the Covid-19 pandemic and uncertainty around proposed cuts to the Australian R&D Tax Incentive Refund Program meant it would be rationalising its operations.

The company, whose Hadrian X robot can build home structures with bricks, was scheduled to commence its first display home build in Dayton, Western Australia in the coming days.

After that the plan was to transport a Hadrian X robot to interested commercial parties in California, in addition to a new European pilot project, but all that will have to wait as the company slashes $10 million per annum in payroll costs alone.

"Faced with a global health and economic crisis and uncertainty around the Government's support of R&D activities in Australia through the R&D Tax Incentive Refund Program, FBR has acted swiftly to ensure the Company remains well positioned for success as the world recovers from this pandemic," says FBR managing director and CEO Mike Pivac.

"Unfortunately, one of the measures implemented has been to reduce the size of our highly skilled and hard-working team.

"FBR wishes those departing the Company all the best in their future endeavours, and they leave knowing that they made a valuable contribution to the development of the world's first autonomous outdoor bricklaying robot and the supporting technologies that comprise the digital construction ecosystem it operates within."

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