Afterpay partners with VISA as US sales almost touch $1 billion mark

The company most synonymous with the growing buy-now pay-later (BNPL) phenomenon has posted an 86 per cent rise in total income for FY19, but the result has come at a cost as Afterpay Touch Group (ASX: APT) establishes its overseas ventures.

While Afterpay's income almost doubled to reach $264 million, investments in the US and UK led the Melbourne-based fintech's after tax loss to more than quadruple to $43.8 million.

The result is in contrast to its competitor Zip Co (ASX: Z1P), which managed to cut its loss in half for the year but has nowhere near the same international presence yet and is only in the early stages of an overseas expansion through the acquisition of PartPay. 

Afterpay's statutory figure may not be encouraging from a bottom line perspective, but it belies an operational improvement. Pro forma gross loss as a percentage of underlying sales improved from 1.5 per cent in FY18 to 1.1 per cent in FY19.

The group also announced it has entered into agreements with VISA to form a strategic partnership to support the development of innovative new solutions and business growth in the US market.

"The agreements will facilitate the ability for Afterpay to expand the delivery of its services to merchants and customers in a more flexible and efficient manner," the company said.

The deal comes as Afterpay is now reporting US underlying sales almost reached $1 billion in the first full year of operations, with a run-rate above $1.7 billion. This compares to a level of $4.3 billion in Australia and New Zealand, itself double the figure registered in FY18.

New major retail partnerships in North America include MAC Cosmetics, Anastasia Beverly Hills, Untuckit, BCBGeneration, Rebecca Taylor, Dockers, Hourglass Cosmetics, Sakara and Kylie Skin.

The company highlights major new merchants continue to on-board in both the US and the UK, with the latter securing 200,000 customers in the first 15 weeks.

This is a higher number than the US at the same time post-launch, with new retail partnerships in Great Britain including Pretty Little Thing, boohoo, JD Sports and Missy Empire.

In Australia and New Zealand, merchants that have gone live or signed with Afterpay include David Jones, Myer, Bing Lee, Mitre 10, Nixon, Patagonia, Petstock, Shavershop, Gorman, Dangerfield, T2 and City Chic NZ.

"Pro forma EBITDA (excluding significant items) of $35.5 million was broadly in line with pcp, with strong earnings growth in Australia and New Zealand offsetting the start-up costs in the newer US and UK markets, as part of an overall Afterpay platform," the company said. 

In mid-August the ABC reported the Australian Financial Complaints Authority (AFCA) had received 250 complaints about BNPL services in the eight months to 30 June in relation to unauthorised transactions, incorrect fees and negative impacts on credit ratings. Meanwhile, the industry is establishing a code of practice to limit revenue from late fees.

Those concerned about the practices of BNPL operators may be encouraged by the reduction in Afterpay's late fees as a percentage of total income, falling from 24.4 per cent to 18.7 per cent.

"This was a pleasing result driven by the enhanced consumer protections built into our product and the benefits of our differentiated business model that is aligned to our customers," the company said.

Shares in the company were up 6.26 per cent at $27.49 each at 10.26am AEST. 

Business News Australia