At time of writing, Afterpay Touch Group Ltd [ASX:APT] is one of the big winners of the day, up 4%.
This comes after our previous coverage of Afterpay’s Share Purchase Plan.
The Share Purchase Plan goal was to raise $20 million in funds to allow the company to expand internationally.
As you can see, Afterpay is doing very well this year, hitting a high on August 27.
Big gains for Afterpay this year
Source: Market Index
With success in the local market, 2.3 million Australians used Afterpay last year.
It is exploring a number of international markets with the US market in particular in its sights.
Goldman Sachs estimates that if it could capture just 3.5% of total customers in the US, it would more than double its current customer base.
But despite this rosy picture, there are a few warning signs to be aware of.
Uncertain future for Afterpay
For starters, Afterpay is yet to turn a profit in Australia.
Like many tech stocks, it is currently traded on speculation around future profitability.
Additionally, if it is to break into the US market it will face stiff competition from existing credit companies.
The other issue is that given that the US market is the land of credit purchases, many of Afterpay’s potential users may already be in heavy debt.
Credit default rates are much higher in the US than in Australia.
Not to mention the potential regulatory hurdles it may face in the near future.
he Australian Securities and Investment Commission (ASIC) has recently called for tighter regulation of the ‘buy now, pay later’ sector.
One final note.
Australian households are already leveraged to the hilt, with debt to disposable income at nearly 200%.
With this in mind, it’s worth taking a wait and see approach with Afterpay.
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