About: Afterpay allows retailers to offer their customers the option to buy now and pay later without a credit card and for zero cost. The business model is simple, the cost is worn by the retailer for a similar fee between 4-6% and in return they receive a higher average basket size, which in the case of some retailers is 40% higher than a traditional customer. If the customer pays on time, they pay nothing more than the retailers’ price tag

Why it’s in the portfolio: We recently met with the founder and CEO of Afterpay, Nick. We gained insights into the progress of Afterpay’s expansion into the US. Afterpay has assembled a well credentialed management and leadership team in the US, with high calibre recruits from the likes of Uber and Paypal. Afterpay is scaling much faster than was seen in Australia at a similar stage. We initially bought into Afterpay based on the likelihood of the network effect playing out in terms of both the retailer and the consumer driving demand. After visiting the US we gained further confidence that the network effect is playing out strongly in the US which is supportive of our investment thesis.

Fundamentals: APT market capitalisation is $5.5bn. APT is trading on EV/EBITDA 40x based on the Australian business alone. We think the US business is shaping up to be >5x the size of the current Australian business in 5 years. If this plays out we expect at least 100% upside in the share price.

What could go wrong? Coming soon.