Afterpay is considering a US IPO after billion-dollar month

The Australian market darling is exploring a North American IPO, saying its shareholders are increasingly globally focused.

Nick Molnar, co-CEO of Afterpay. Picture: John Feder

“Buy now, pay later” darling Afterpay is mulling a potential blockbuster US listing, with the company racking up more than $1bn in sales in a single month in what is now its biggest market.

The group said the review was under way “given the US market is now the largest contributor to our business and is expected to continue to grow strongly”.

However, Afterpay said its headquarters would remain in Australia and it did not set a timeline for a board decision on the listing, which would probably be on the tech-heavy Nasdaq bourse.

A North American IPO would see Afterpay join the likes of software company Atlassian, which was started in Sydney but listed on the Nasdaq in 2015, and is now worth about $US57bn ($73.4bn).

“While Afterpay intends to remain an Australian-headquartered company, our shareholder base is increasingly becoming more globally focused. A US listing would further accommodate this growing interest,” the group told the sharemarket.

“There is no timeline set for a board decision on a US listing and any listing would be subject to market conditions, approval by a US exchange and satisfying a number of other customary listing prerequisites.”

Most of Afterpay’s institutional investors are US-based, and an increasing number of its shareholders are offshore, while the company now has about 17,600 new US customers signing up to its service every day.

Afterpay released the news alongside a trading update showing that sales were up 104 per cent in the third quarter of the 2021 ­financial year, against the prior comparable period. Underlying sales in the US and Britain were up 211 per cent and 277 per cent respectively in the same quarter, on a local currency basis.

Additionally, the company said March saw “the second-highest monthly underlying sales ever recorded”, surpassing last year’s performance in the traditional bumper month of December.

Its US division in March became the first region to record more than $1bn in underlying sales in a single month.

Over the March quarter, active customers globally increased 75 per cent to 14.6 million.

The company’s shares fell 0.8 per cent to $125.23, giving it a valuation of $36.23bn.

Afterpay’s plans come after its rival Zip announced on Monday that major US institution Bank of America had acquired 34 million shares, or 6.15 per cent of the company, as Zip also looks to increase US market share through its subsidiary QuadPay.

Afterpay co-founder and co-CEO Anthony Eisen told The Australian in a recent interview that it was his company’s focus on consumer trust that had allowed it to be a major player overseas, not just in Australia.

“What we’re seeing now is a once-in-a-lifetime generational shift away from traditional credit products,” he said. “Afterpay didn’t invent that, Afterpay has responded to that trend, which has pretty much emerged since the global financial crisis.

“If anything, I see that accelerating, and I think we’re very well positioned. It’s not just a young thing, it’s not just a millennial thing. They’re the early adopters, but the median age of opting in to pay later in Australia is 34-35, and we’re seeing those trends overseas as well.”

Analysts at Macquarie welcomed the potential US listing.

“If executed we see this as a positive, increasing Afterpay’s competitive advantage through access to an enlarged capital base,” they said in a research note.

Royal Bank of Canada capital markets analyst Tim Piper said demand for Afterpay’s in-store ­offering in the US looked strong, with higher engagement of omni-channel customers and 3.5 million downloads of the Afterpay card.

Afterpay co-CEOs Nick Molnar and Anthony Eisen.

“We think with an acceleration in merchant in-store adoption, sales will accelerate meaningfully,” Mr Piper said. “Merchant margin commentary looks slightly below our numbers, while firm, margins are in line with 1H21.

“We have a last published outperform rating on Afterpay, with a $150 per share price target.

“The business in our view remains well-placed to meet our expectations [for the half], with March gaining momentum, up on December, and April customer ­acquisition looking strong. It is worth noting March benefited from the Afterpay Day sales event.”

UBS analyst Tom Beadle said the US business was now Afterpay’s largest contributor in terms of volumes, but was currently loss-making and had structurally lower margins due to high interchange fees.

Additional reporting: Lachlan Moffet Gray