Afterpay Ltd (ASX:APT) shareholders watch out, a global tech giant is launching a challenge.

Shopify is a Canadian based eCommerce giant which has one million merchants that uses its platform. 

Shopify held a conference today. Aside from a number of other Shopify-specific announcements, there was one key thing that Afterpay needs to watch closely. 

What did Shopify announce?

The eCommerce global giant is launching ‘Shop Pay Installments’. Sounds like Afterpay’s instalments right? This could be challenging even though Afterpay is growing strongly. 

As part of the announcement, Shopify said:

“It’s not just merchants who are struggling with cash flow right now; their buyers are feeling the pinch, too. To help, we’re announcing the launch of Shop Pay Installments, coming to merchants and buyers in the U.S. later this year.

Shop Pay Installments allow buyers to pay for purchases in four equal payments over time, with no interest or fees. Merchants will receive the full purchase amount upfront, and Shopify will collect the remaining installment payments, meaning there’s no risk to merchants. This flexible payment option will allow buyers to stretch out their payments, making purchases more convenient. This, in turn, will help merchants increase cart sizes and overall sales.

Installments will be fully integrated into the Shop Pay accelerated checkout, meaning merchants can continue to offer buyers a seamless checkout experience.”

I think a key part of that is that it seems Shopify will be giving merchants “the full purchase amount upfront”. There was no mention of a high merchant fee like the one Afterpay charges.

Why this could hurt the Afterpay share price

The US is a huge growth target for Afterpay. If you were a US merchant are you more likely to want a customer to use Shopify’s service (which has a lower merchant fee per transaction) or Afterpay’s service?

It could mean Afterpay will have to make a difficult choice in the future between market share and margin. It’s this type of announcement which would make me nervous about holding Afterpay shares for the long-term. At a share price of $44, Afterpay doesn’t appeal to me at all. I’d actually be thinking about taking profit off the table.

More reading

• These ASX payments shares could be long term market beaters
• ASX 200 down 0.2%: Afterpay hits a record high, Aristocrat Leisure update disappoints
• Why Afterpay, AMA, NRW, & Santos shares are racing higher
• Why I’d invest $1,000 in this ASX tech share today
• Afterpay share price on watch after hitting 5 million active US customers

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The AFL season will officially resume on 11 June following an unprecedented suspension of play. This could spell good news for the Pointsbet Holdings Ltd (ASX: PBH) share price and peers such as Tabcorp Holdings Limited (ASX: TAH). 

Furthermore, as highlighted in a recent article published on the ESPN website, the US now has 18 states with regulated sports betting markets. This means just over 30% of the US population has access to legalised sports betting. The article goes on to say that more than half of all US states will offer legal sports betting within the coming years.

Also, earlier this month, 2 sports betting bills passed a vote in the Senate in Louisiana. These bills will now move to the House of Representatives. If both bills pass through the House, it’s possible sports betting will be legal in that state by the year’s end.

What does this mean for the Pointsbet share price? 

The more sports betting markets that open up, the more turnover will result for bookmakers like Pointsbet. In the company’s Q3 update for its Australian business, Pointsbet saw clients transferring to higher margin products such as thoroughbred, harness and greyhound racing. This was as a result of the suspension of AFL and NRL and the the timing could not have been better for the company. After all, it had just executed a Tier 1, Australian horse racing partnership with Channel 7.

Pointsbet’s turnover in Australia increased 58.3% in Q3 FY20 vs. Q3 FY19. Despite this being 3.5% down on Q2 FY20, this is still a strong result, particularly given the impact of coronavirus. 

With coronavirus restrictions beginning to ease, the UFC is running 3 events this month, the AFL has locked in a start date and many sports leagues around the world are planning their returns. This can only mean good news for Pointsbet’s revenue, growth and share price. 

Pointsbet in the US 

Pointsbet currently derives most of its US revenues from the state of New Jersey. It also has access in Iowa, Indiana, Kansas and Colorado. The company’s US turnover tells a similar tale to its performance in Australia. Turnover soared 285.4% between Q3 FY20 vs. Q3 FY19, but fell 19.4% on Q2 FY20 results. 

Pointsbet’s response to COVID-19 includes scaling down its major expenses including employee, sales and marketing costs. Its business costs are highly correlated with betting turnover, revenue and deposit/withdrawal volumes. As such, these costs will likely reduce proportionally with the expected fall in these metrics. Its marketing expenses are also variable in nature, and the company is preparing to significantly reduce this expense for the quarter to 30 June 2020.

Foolish takeaway 

I think the favourable regulatory conditions in the US will create a great springboard for Pointsbet’s growth as things return to ‘normal’. The company has an unbelievably strong cash position of $149.4 million, relative to its market capitalisation. It also has no borrowings. Pointsbet is cashed up and, I believe, poised for future share price growth. 

More reading

• ASX 200 market close: Share market up 1.8%
• ASX gambling shares on watch as sporting codes make plans to resume
• 3 ASX shares I should have bought last month
• Are ASX shares about to surge higher in 2020?
• Why I’m holding onto my Pointsbet shares

Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Pointsbet Holdings Ltd. The Motley Fool Australia has recommended Pointsbet Holdings Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The S&P/ASX 200 Index (Index:^AXJO) is on track to post its fifth straight session of gains, but not all stocks are partaking in the merrymaking!

The top 200 stock benchmark added 0.2% in morning trade as the reopening of the global economy is emboldening the bulls.

This is despite the fact that the number of new daily COVID-19 cases worldwide hit another record high of 106,000 cases on Wednesday.

At risk of sounding like a coronavirus wet blanket, I should point out that not all ASX shares are having a good time. Here are two that are slumping today after top brokers downgraded their recommendation on these ASX stocks.

Can’t cut your way to growth

One laggard is the TechnologyOne Ltd (ASX: TNE) share price, which dropped 1.8% to $9.63 at the time of writing.

Its underperformance may have something to do with UBS urging investors to cut and run even though management delivered a good first half profit result.

But good isn’t good enough in the broker’s book. Management’s guidance on Software as a Service (SaaS) annual recurring revenue of $133 million for FY20 may be a solid 31% increase over last year, but it’s well below UBS’ forecast of $164 million.

“We forecast 2H20E non-R&D/SaaS opex will need to reduce 10% yoy (ex-AASB16 impacts) to hit the bottom end of the guidance range (8% PBT growth) with a 14% reduction required to hit the top end (12% PBT growth),” said the broker.

“COVID-19 impacts will likely contribute to this from reduced travel and marketing expenditure. A significant step up in incremental SaaS ARR is also required (+$25m hoh) as well as $18m in 2H20 Initial Licence Fees.”

UBS downgraded the stock to “sell” from “neutral” with a price target of $8.20 a share.

Knocked down

Another stock in the doldrums today is the Fletcher Building Limited (ASX: FBU) share price. The New Zealand-based building supplies group dropped 2.8% to $3 after Citigroup cut its rating on the stock to “neutral” from “buy” following management’s latest update.

“Fletcher Building’s skew to NZ and exposure to residential construction has led to very weak recent sales trends,” said the broker.

“While sales improved in May 2020, they are still down 10%-20% on budget. Fletcher Building’s own forecasts indicate that construction activity will drop much further in FY21e.”

Infrastructure construction is the only bright spot on the horizon for the group, but it only contributes to around a quarter of Fletcher’s total sales.

The timing of the aggressive shutdown of the NZ economy to contain COVID-19 also couldn’t come at a worse time. Citi noted that the quarter typically makes up 40% to 45% of the group’s full year earnings.

The broker’s price target on the stock is NZ$3.50 a share.

More reading

• Top brokers name 3 ASX 200 shares to sell today
• ASX 200 down 0.2%: Afterpay hits a record high, Aristocrat Leisure update disappoints
• Why ASX 200 iron ore miners are your best bet for dividends right now
• How to invest $1,000 in ASX 200 shares like Warren Buffett today
• Why I’d invest $1,000 in this ASX tech share today

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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