Afterpay calls for calm after share rout

Chief executive Anthony Eisen has written a letter to reassure anxious shareholders, after almost $1.5bn was wiped from the company’s valuation.

Portrait of Anthony Eisen, CEO of Afterpay. Friday 11th Jan 2019 Photo by Natalie Grono

A letter from the chief executive of 'buy now, pay later' provider Afterpay has failed to convince panicked investors, with shares in the tech outfit tumbling by another 24 per cent on Thursday.

Anthony Eisen, who co-founded Afterpay in 2015, attempted to reassure shareholders in a letter Thursday morning that Afterpay has the business fundamentals in place to weather economic uncertainty from the coronavirus pandemic.

As retail conditions continue to deterioriate there are fears that BNPL lenders like Afterpay, Zip and Sezzle will be some of the hardest hit. They all fell in trading on Wednesday, with almost $1.5bn wiped off Afterpay’s valuation.

They all fell further on Thursday, with Zip dropping 11 per cent to $1.18 and Sezzle down a whopping 21 per cent to 55 cents a share. Afterpay fell 24 per cent to close at $9.70, compared to its all-time high just weeks ago of $41.14.

"We are unaware of any information, outside of the current uncertainty in the market generally, that would have precipitated recent share price performance," Mr Eisen wrote in the letter.

"I would like to acknowledge the impact that this volatility may be having on you, our securityholders and appreciate your support through this period of market instability."

Mr Eisen said Afterpay executives had not yet seen a material impact on business activity or timing of instalment repayments or transaction losses to date due to coronavirus.

"We have a dynamic system and risk mitigation capability and we are implementing measures proactively and are well prepared to add further measures as required," he said.

"Due to the dynamic nature of Afterpay’s system and the short duration of our receivables book (less than 30 days) we are able to manage losses in real time by identifying leading indicators early and modifying risk parameters in the system immediately.

"Our strong balance sheet and liquidity position provides us with the capacity to both continue to fund our operating expenditure and significantly expand our business activities in the medium term."

He added that the company has over $1bn of warehouse facilities in place with major financial institutions, cash on its balance sheet of over $400m and a liquidity position of over $672m.

"We are progressing with the execution of our strategic objectives and will continue to communicate regularly with our retailers and customers to advise that we will support them through future periods of uncertainty," he wrote.

"A decision has been made, following encouragement by our retailers, to proceed with Afterpay Day on 19-20 March 2020. We believe it is important that we continue to support our merchants who are rapidly looking to increase their online exposure in the current environment and will redirect a portion of our existing budgeted marketing spend for this purpose.”

He further revealed that more than 90 per cent of Afterpay’s monthly underlying sales are generated by repeat customers., while average transaction value was $150 and average outstanding balances were $211.

"The majority of Afterpay’s underlying sales are generated from online transactions. We have asked our employees to work from home in order to ensure their health and safety over the coming weeks and months. This has occurred seamlessly with no disruption to our service.

"I thank you for your ongoing support of our business and our thoughts go out to all who have been affected in any way by the current and unprecedented times."