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24.07.18 | The Afterpay rocket.

24.07.18 | The Afterpay rocket.

Afterpay is emerging as a really powerful competitor to credit cards! And both investors and customers dig it.

25 July 2018 · 3 min read

Newsletter: Published Tuesday, 25 July 2018.

News tidbit

Music is great!

So is a well-thought out succession plan.

David Solomon is set to take the top job at Goldman Sachs once the current CEO Lloyd Blankfein steps down.

This makes sense, given he’s also bald, brusque and generally acknowledged to be a competent operator in the capital markets.

What’s also rather interesting is Mr Solomon is also a Disc Jockey - called D-Sol - and recently released his first electronic dance single called “Don’t Stop”.

It is a remix of a Fleetwood Mac track and throughout the Spaceship office, it has generated some bemused feedback.

Anyway, on to the update.


Afterpay's good month.

(Afterpay is a company in which the Spaceship Universe Portfolio invests.)

When shares in Australian technology companies pop, they really pop.

Shares in Melbourne-based Afterpay have rocketed 35% higher in the last week, and blowing out the company’s market capitalisation to $3.25 billion. (According to today’s Bloomberg).

AfterPay is a layby-like service that lets shoppers get something immediately - a frock, a mouthguard, a new mattress - and then pay for it in four equal fortnightly instalments.

Afterpay charges 4% of each transaction to the businesses who offer the service, but no fees or interest are charged to the shopper (other than late fees).

So, if you’re the one buying the frock for $400, then you’ll pay it back at a rate of $100 a fortnight for the next eight weeks.

And the shop selling you the frock will pay Afterpay $16 for the transaction.

But if you’re late in making a payment you’re charged a late fee (which is $10 at first and then a further $7 where the payment remains unpaid a week later).

It turns out, Australians love this service.

Afterpay launched in 2015 and says (in its most recent business update) it processed more than $2.18 billion of sales through the Afterpay platform in 2018, a 289% increase on the previous 12 months.

Afterpay says 10% of all physical online retail in Australia is processed through their service and 70% of all their customers are millennials.

Last week the company updated everyone about how its expansion into the United States is going. And by all accounts it’s going splendidly.

June 2018 was the first full-month of operating in the United States and Afterpay managed $US11 million in underlying sales. As Tristan Cole points out, it took 16 months to reach this scale in Australia.


But what about buying things you can't afford?

What’s incredible, is that the folks buying the frocks and the mouthguards and the furniture or whatever are really good at paying the money back.

Afterpay is emerging as a really powerful competitor to credit cards!

A credit card lets you buy things you might not be able to afford until you reach your credit limit, and charges interest on the amounts you owe.

Afterpay is different because if you start incurring late fees, you won’t be able to make any further purchases with Afterpay until you’ve repaid any overdue amount.

According to the company presentation, 97% of all Afterpay orders incur no late fees and last week the company pointed out that 77% of users say Afterpay helps with budgeting.

The latest retailers to sign up include Bing Lee, Mitre 10 and Diesel.

Important! Afterpay is a company in which the Spaceship Universe Portfolio invests. The Spaceship Index Portfolio does not invest in Afterpay. We’re sharing with you our thoughts on the companies in which the Spaceship Voyager funds may invest for your informational purposes only.

We think it’s important (and interesting!) to let you know what’s happening with the companies in which Spaceship Voyager invests. However, we are not making recommendations to buy or sell holdings in a specific company. Past performance isn’t a reliable indicator or guarantee of future performance.

The information in this article is prepared by Spaceship Capital Limited (ABN 67 621 011 649, AFSL 501605). It is general in nature as it has been prepared without taking account of your objectives, financial situation or needs.

Jessica Sier is a financial journalist. Prior to that she led content at Spaceship and was a reporter at the AFR where she discovered that breaking down financial jargon was a public good.

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