The Appen Ltd (ASX: APX) share price has become a shell of its former self. From a superstar performer in the ranks with leading ASX 200 tech shares such as Afterpay Ltd (ASX: APT) and Xero Ltd (ASX: XRO), to losing more than 50% of its value since August 2020. 

Despite its weaker earnings and shocking share price performance, analysts at Bell Potter think that the Appen share price is still worth holding. 

The Appen share price nosedives on weak earnings 

Just when you think things couldn’t get worse, shares in the data solutions provider dived last Wednesday on poor FY20 earnings. At the $16.50 level, this marks a 60% slump since its August 2020 record-all time high and brings its shares to a 2-year low.

After running the ruler for Appen’s full-year earnings,  the company’s underlying earnings before interest, taxes, depreciation, and amortization (EBITDA) of $108.6 million was close to Bell Potter’s forecast of $109.0 million.

Revenue of $599.4 million was 6% below the broker’s forecast of $637.4 million, but a higher-than-forecasted EBITDA margin made this up. 

Looking ahead, Appen provided a forecast FY21 underlying EBITDA of $120 million to $130 million. This was well below the broker’s forecast of $145.8 million. The company cited year-to-date orders in hand of $240 million (vs. $210 million a year ago) and that “1H21 earnings growth will be impacted by the near-term challenges, a greater skew of timing of project delivery to 2H21 and the lower pcp cost base”. 

As a result, Bell Potter downgraded its 2021 and 2022 earnings per share (EPS) forecasts by 23% and 26%. It now forecasts underlying EBITDA in 2021 to be $119 million, just below the guidance range. 

Appen share price rated as a hold

Bell Potter maintains a hold recommendation for Appen shares with a 12-month price target of $19.50. This represents an upside of approximately 17.50% compared to its price at the time of writing. The broker points to the company’s redeeming factors, which include its long-term growth track record and strong customer relationships. 

Appen was established in 1996 and has a long track record of revenue growth with strong margins. In 2020, the company recorded revenue and underlying EBITDA growth of 12% and 8%, respectively. 

The key competitive advantage of Appen is the longstanding relationships it has with many of its customers. The majority of revenue is from repeat customers as they update and upgrade their products.

More reading

• Top ASX shares to buy in March 2021
• These were the worst performing ASX 200 shares in February
• ASX 200 Weekly Wrap: Friday carnage ruins last week of ASX earnings
• Top brokers name 3 ASX shares to sell next week
• These were the worst performing ASX 200 shares last week

Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Appen Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO and Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Macquarie Group Ltd (ASX: MQG) provided an earnings upgrade on 22 February, citing profit would be up 5% to 10% from its “slightly down” guidance just two weeks prior. This update helped the Macquarie share price push 2% higher on the day of the announcement.

Macquarie asset management to drive performance 

Macquarie’s earnings are being boosted by the extreme winter weather in North America which has significantly increased client demand for the physical supply of gas and power. 

Macquarie generates part of its income by connecting producers and consumers and has considerable investments in energy and oil storage, and a commodities trading business that benefits from higher prices. 

In a research report released on 23 February 2021, Morningstar stated that it believes Macquarie’s asset management business is well-placed to capitalise on growth in global infrastructure and renewable energy investment over the next five years. It cited low cash rates as being likely to spur investment, as investors chase income and drive up asset prices.

With established capabilities and investment records, the large asset managers in the space continue to garner the bulk of inflows into the category. In its report, Morningstar outlined the global infrastructure spending tailwinds which are likely to drive growth for Macquarie asset management. These include commentary from the American Society of Civil Engineers which estimated that around $5 trillion is needed to be spent on infrastructure by 2025, covering ageing transportation and electricity assets as well as schools and airports. 

Furthermore, Morningstar noted that Macquarie’s Australian home loan book also continues to grow well ahead of the market, benefitting from its investment into digital capabilities. Morningstar highlighted that Macquarie’s operating efficiency coupled with consistent lending standards is being rewarded in the mortgage broker channel.

Macquarie sources a larger share of its funding from business customers and cash management accounts, not only helping to keep funding costs low, but providing the capital required to grow its loan book.  

Morningstar maintains its Macquarie share price estimate 

Despite the tailwinds for Macquarie’s businesses, Morningstar believes that the one-off uplift to earnings due to volatile commodity demand and prices has no bearing on longer-term forecasts. On 23 February, the broker maintained its $125 fair value estimate for the Macquarie share price. 

The bull and bear case for the Macquarie share price 

Morningstar’s report provided a breakdown of what factors could sink or swim the Macquarie share price.

Bulls 

• Macquarie’s position as the largest infrastructure asset manager globally leaves the firm well placed to benefit from underlying demand for assets and investors searching for sustainable income streams.
• The expansion into funds management has produced more sustainable, less capital-intensive, annuity-style income, which will prevent a GFC-like shock to earnings and return on equity.
• A focus on niche segments of investment banking allows Macquarie to continue increasing earnings globally.

Bears 

• Without the support of falling cash rates, it is unlikely Macquarie can continue to achieve double-digit returns in infrastructure, resulting in lower performance fee income.
• Macquarie invests directly in unlisted assets and businesses, and despite being diversified, a large bankruptcy or asset write-down would still have an impact on group profits.
• A large investment portfolio makes it more difficult for investors to track and identify issues early.

At the time of writing on Monday, the Macquarie share price is trading 1.86% higher at $145.13.

More reading

• ASX 200 Weekly Wrap: Friday carnage ruins last week of ASX earnings
• Nine (ASX:NEC) share price on watch as profit doubles
• Vocus (ASX:VOC) share price rises after takeover update
• ASX 200 drops 0.2%, Costa soars, BOQ is buying ME Bank
• ASX 200 up 0.1%: Macquarie upgrades guidance, Costa impresses, NIB surges higher

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Xtek Ltd (ASX: XTE) share price was shot down as losses in the group widened substantially even though its results weren’t as bad as the headline numbers suggested.

Shares in the defence equipment supplier crashed 6.6% to 57 cents this morning. The sell-off comes as management reported a 55% increase in first half net loss to $3.6 million on Friday evening.

Xtek’s top line fell too. Revenue declined 23% to $12.4 million for the six months ended 31 December 2020, compared to the same period in 2019.

Silver lining to Xtek’s profit results

But it isn’t all bad news, although most investors would have missed any good news as these are buried in the details.

It also doesn’t help perception as Xtek chose to release its results after the market closed on Friday. There’s a market belief that only ASX shares with bad news will release an announcement after the closing bell on a Friday.

However, management’s positive outlook commentary should sooth fears about its new Adelaide manufacturing plant.

Ramping up production

Problems with the commissioning and ramp up of the new plant, which makes bullet proof composites, have been the main reason why the Xtek share price has underperformed since its capital raising in August 2020.

These issues seem to have been addressed. Xtek received regulatory approval to operate the plant and has successfully manufactured and tested three hard amour plates.

Xtek believes the plant will hit full production by the June quarter and current orders for its plates can be fulfilled at the smaller existing test plant.

Bigger net loss explained

The bigger net loss is also largely due to increase costs. These related to the commissioning the Adelaide plant and running the recently acquired US body armour business HighCom.

The drop in interim revenue is more disappointing. The fall comes even as HighCom’s topline increased by 30% to US$10 million for calendar 2020 compared to the year before.

This suggests a lacklustre first half for the rest of Xtek’s businesses, which includes military drones, software and armaments.

Positive outlook fails to support Xtek share price

But management is tipping a stronger second half result due to the seasonality of its business. Defence spending typically picks up towards the end of the financial year in Australia. This is because government departments have to spend their budgets or risk losing some of their funding in the new financial year.

Xtek is also predicting an increase in exports of its bullet proof plates, further sales of spare parts and servicing for its drones used by the Australian Army, and sales of its drone mapping software under the federal government’s C4EDGE program.

Shareholders not feeling the Pyne

Another piece of significant news is the appointment of former defence minister Christopher Pyne as a non-executive director.

The cynic in me thinks this could be another reason why the stock is underperforming. ASX companies that appoint ex-government minsters to their boards don’t have a good track record in creating shareholder value.

Xtek shareholders like myself will be hoping this time will be different.

More reading

• Douugh (ASX:DOU) share price falls as losses grow
• ASX 200 up 1.5%: Afterpay & Zip jump, Fortescue tumbles
• BNPL providers like Afterpay (ASX:APT) set for increased regulation
• Why the Cimic (ASX:CIM) share price is edging higher today
• Johnson & Johnson coronavirus vaccine wins FDA authorisation

Motley Fool contributor Brendon Lau owns shares of Xtek Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Douugh Ltd (ASX: DOU) shares are falling in Monday’s session following the release of the company’s half-year (1H21) results. At the time of writing, the Douugh share price is trading 2.33% lower at 21 cents.

Here’s a rundown of the fintech company’s 1H21 performance.

What’s impacting the Douugh share price?

The Douugh share price is on the slide today after the company reported a 1H21 loss of $5.4 million, compared to a $739,000 loss reported in 1H20.

Douugh’s earnings per share (EPS) was negative $1.17 in 1H21 compared with negative 71 cents EPS in the prior corresponding period (pcp).

As of 31 December 2020, the company held $17 million in total assets. Total assets held as of 30 June 2020 was $812,000.

Cash and cash equivalents at the end of 1H21 was $16 million, compared with $370,000 at the end of the pcp.

Inclusive of GST, Douugh posted $734,000 in receipts from customers for the period, a bump up from the $363,000 earned in 1H20.

Douugh’s total equity for the half was $15.1 million. A $900,000 deficiency was posted for 1H20.

Operations review

In September 2020, Douugh completed its acquisition of Douugh Technologies Limited (formerly ‘Douugh Limited’).

DOU premiered on the ASX in October 2020 following a reverse takeover of Australian telco Zip Tel.

On Friday, Douugh announced that it has executed a binding share sale agreement with Goodments, a millennial investing app. Goodments currently operates in Australia with a customer base that exceeds 13,000.

Douugh advised that the transaction will enable it to accelerate the development of its activities while also positioning the company to move into the retirement and superannuation industries. 

Following its 2020 launch in the United States, the Douugh Australia app is set to launch later this year.

Douugh share price snapshot

Douugh is a fintech company that offers money management services to its client base via the Douugh mobile app. The business states that its vision is ‘to become a subscription-based financial control centre’.

Over the past year, the Douugh share price has gained 200%. Douugh shares have also surged more than 20% in the past month.

Based on the current share price, the company commands a market capitalisation of $77.3 million with 359.4 million shares outstanding.

More reading

• What’s with the Douugh (ASX:DOU) share price today?
• Why Chorus, Douugh, IOUpay, & Reliance shares are tumbling lower
• Douugh (ASX:DOU) share price plummets 9% today despite strong start
• Payright (ASX:PYR) shares get speeding ticket after 32% surge
• The Novatti (ASX:NOV) share price rocketed 38% today

Motley Fool contributor Gretchen Kennedy has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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At lunch on Monday the S&P/ASX 200 Index (ASX: XJO) is back on form and storming higher. At the time of writing, the benchmark index is up 1.5% to 6,774.9 points.

Here’s what is happening on the market today:

Tech shares rebound

The tech sector is rebounding after a positive night of trade on Wall Street’s Nasdaq index on Friday night. The likes of Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) are recording notably strong gains are helping to drive the S&P/ASX All Technology Index (ASX: XTX) 2.6% higher at lunch. On Friday night the tech-focused Nasdaq index rose 0.5%.

Fortescue share price tumbles

The Fortescue Metals Group Limited (ASX: FMG) share price has come under pressure on Monday. However, the pullback in the Fortescue share price has nothing to do with its performance and everything to do with its dividend. This morning the iron ore giant’s shares traded ex-dividend for its fully franked interim dividend of $1.47 per share. Eligible shareholders can look forward to receiving this dividend on 24 March.

Kogan rated as a buy

The Kogan.com Ltd (ASX: KGN) share price is rebounding from last week’s 22% decline. Investors have been buying the ecommerce company’s shares after analysts at Credit Suisse retained their outperform rating and trimmed the price target on them slightly to $20.85. The broker believes the company is well-placed for growth over the medium term.

Best and worst ASX 200 performers

The Austal Limited (ASX: ASB) share price the best performer on the ASX 200 today with a 6.5% gain. This follows the announcement of the delivery of a new vessel. The worst performer on the index has been the Fortescue share price with a 6% decline. This is due to its shares trading ex-dividend this morning.

More reading

• BNPL providers like Afterpay (ASX:APT) set for increased regulation
• Will the Afterpay (ASX:APT) share price go higher in 2021? Here’s what Goldman Sachs thinks.
• The Kogan.com (ASX:KGN) share price sank 22% in February: Time to buy?
• Why the Fortescue (ASX:FMG) share price is sinking 6% today
• Here’s why the Austal (ASX:ASB) share price is storming 6% higher

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Austal Limited, Kogan.com ltd, and ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Kogan.com ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post ASX 200 up 1.5%: Afterpay & Zip jump, Fortescue tumbles appeared first on The Motley Fool Australia.

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Ever since its inception, critics of the buy now, pay later (BNPL) concept have called for ‘more regulation’ for BNPL providers like Afterpay Ltd (ASX: APT).

Traditional credit providers, such as the ASX banks, have long been subject to strenuous rules and regulation in Australia. These are mostly designed to protect consumers from usurious practices and the like.

But the BNPL sector has largely escaped this kind of oversight. That’s mainly because BNPL products don’t tend to charge interest on their consumer’s debt. That makes it hard to call them ‘credit providers’. That’s despite the fact that BNPL companies help their customers spend money that isn’t theirs.

All of this has resulted in BNPL inhabiting a ‘grey area’ of financial laws and regulations. But the surge in popularity that BNPL services have enjoyed in recent years (particularly over the past year) has lead to growing calls for this grey area to be coloured in.

And that seems to be what is developing today. According to a news.com.au report today, Australia will become the first country in the world to implement industry standards for the sector. These standards will be designed to ensure safe practices and “name and shame dodgy lenders”.

BNPL gets deeper oversight

The new code, which the Australian Finance Industry Association (AFIA) drafted, is reportedly set to come into effect on Monday.

It will force companies like Afterpay, Zip Co Ltd (ASX: Z1P), and Commonwealth Bank of Australia‘s (ASX: CBA) Klarna to adhere to new rules. These include late payment caps for customers and compulsory financial/credit checks on customers before they make a purchase. Providers will also be prohibited from allowing people under the age of 18 to use a BNPL service.

It also aims to prevent any lender from placing additional pressure on someone in financial hardship. Companies will also be forced to take some partial payment upfront before offering a service.

According to the report, BNPL disputes under the code will be adjudicated by the Australian Financial Complaints Authority. A designated committee will be looking to name and shame companies providing shoddy lending to customers.

The report quotes AFIA chief executive Diane Tate, who had this to say on the new code:

The growth and diversity of the products and services enhances consumer choice… It brings to life the concept that innovation and competition are for the everyday person and that this can be achieved while codifying strong consumer protections.

BNPL shares like Afterpay are responding well in trading this morning. The Afterpay share price is up 4.6% at the time of writing. Zip shares are doing even better, up 5.77%.

More reading

• ASX 200 up 1.5%: Afterpay & Zip jump, Fortescue tumbles
• Will the Afterpay (ASX:APT) share price go higher in 2021? Here’s what Goldman Sachs thinks.
• ASX 200 Weekly Wrap: Friday carnage ruins last week of ASX earnings
• These were the best performing ASX 200 shares in February
• 3 of the best ASX 200 results from last week

Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Cimic Group Ltd (ASX: CIM) share price is edging slightly higher today following a contract award announcement.

In mid-morning trade, the engineering company’s shares are up 0.04% to $21.30.

What’s driving the Cimic share price today?

In its release, Cimic advised its subsidiaries, UGL and CPB Contractors, have entered into an early contractor involvement (ECI) contract with CuString Pty Ltd for works related to the Copperstring 2.0 project.

Based in Townsville, Queensland, CuString is a privately-owned company that delivers energy infrastructure needs to North Queensland.

The Copperstring 2.0 project is a 1,100km high-voltage transmission line that will stretch across Townsville to communities in north-west Queensland. The project is expected to have a capital expenditure of around $1.5 billion and employ 750 people during the construction phase. Once completed, electricity will be supplied to existing customers and open new opportunities for industrial facilities and agriculture projects.

Under the proposed agreement, UGL and CPB Contractors will conduct several services to begin the assessment stage. This includes scoping, designing, site investigations, pricing and finalising the engineering, procurement and construction contract for substations and high-voltage transmission lines. The deal’s initial phase is estimated to be worth $7 million.

Once the ECI stage is completed along with relevant approvals and financing, the project will move to the delivery phase. Cimic noted that both of its companies are preferred contractors to follow through with works. If selected, UGL and CPB Contractors will start construction services over 3 years. The works are projected to generate $1.7 billion in revenue.

The delivery phase involves the design, construction and commissioning of four new substations, two substation extensions, and the 1,100km high-voltage transmission line.

What did management say?

Cimic group executive chair and CEO Juan Santamaria welcomed the agreement, saying:

UGL and CPB Contractors have proven experience in the delivery of critical infrastructure. We are pleased to support the delivery of this vital transmission line and will look to maximise the economic benefits and employment opportunities that this project can bring to regional communities in North and North West Queensland.

UGL managing director Doug Moss added:

UGL has solid experience delivering high voltage power projects in some of Australia’s remote regions, including the HV connection that feeds Prominent Hill in South Australia.

We are delighted to be working with CuString Pty Ltd, the proponent of the CopperString project, to deliver power infrastructure that will support the growth of this globally significant resources region and export supply chain.

The Cimic share price is down more than 10% from the last 12-month period.

More reading

• Why the Cimic share price (ASX:CIM) is edging higher today
• ASX 200 Weekly Wrap: ASX cools on earnings reality check
• These were the worst performing ASX 200 shares last week
• The Cimic (ASX:CIM) share price is dipping today despite contract win
• Here’s why all eyes will be on the Cimic (ASX:CIM) share price today

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The United States now has a third coronavirus vaccine authorised for use. Johnson & Johnson (NYSE: JNJ)‘s vaccine, developed by its subsidiary Janssen, received Emergency Use Authorisation (EUA) from the FDA on Saturday. This followed a unanimous vote by the regulator’s vaccines and related biological products advisory committee that it do so.

In contrast to the two shots required for both of the other FDA-authorised coronavirus vaccines — Moderna Inc (NASDAQ: MRNA)‘s mRNA-1273 and Pfizer Inc (NYSE: PFE) and BioNTech (NASDAQ: BNTX)‘s BNT162b2 — Johnson & Johnson’s is a one-shot inoculation. 

It also has relatively less burdensome storage requirements, as it can be kept for as long as three months in standard refrigeration temperatures of 36 to 46 degrees Fahrenheit.

The Johnson & Johnson vaccine demonstrated notably lower efficacy (72%) in late-stage testing compared the 95% or so of its two peers. However, 72% is still considered unusually high by vaccine development standards, plus Johnson & Johnson’s was shown to be 100% efficacious in preventing hospitalisation and death. 

The Moderna and Pfizer/BioNTech shots were authorised in December and so far have been administered to nearly 15% of the US population. So it’s likely that Johnson & Johnson’s jab won’t lap past them, no matter its advantages. It will, however, help push the inoculation rate up quickly.

Investors should be aware that Johnson & Johnson won’t be making money from the vaccine during the pandemic. As it reiterated in the press release trumpeting the EUA, it will provide the jab “on a not-for-profit basis for emergency pandemic use.”

The company added that it has already started to ship the vaccine, with the goal of delivering enough to inoculate over 20 million people in the US by the end of March. 100 million doses should be shipped by the end of June.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Moderna stock: Buy the dip?

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Johnson & Johnson and Moderna Inc. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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At the start of each week I like to look at ASIC’s short position report to find out which shares are being targeted by short sellers.

This is because I believe it is well worth keeping a close eye on short interest levels as high levels can sometimes be a sign that something isn’t quite right with a company.

With that in mind, here are the 10 most shorted shares on the ASX this week according to ASIC:

• Tassal Group Limited (ASX: TGR) has seen its short interest rise to 13% to become the most shorted ASX share. Weak prices and concerns that China could slap duties on Australian seafood exports appear to be weighing on investor sentiment.
• Webjet Limited (ASX: WEB) has seen its short interest ease to 12%. With vaccines rolling out across the country, short sellers may believe the worst is now behind this online travel agent.
• Speedcast International Ltd (ASX: SDA) still has short interest of 9.3%. This communications satellite technology provider’s shares have been suspended for over 12 months while it undertakes a recapitalisation after its debts spiralled out of control.
• Mesoblast limited (ASX: MSB) has seen its short interest remain flat at 8.8%. This biotech company’s shares are currently in a trading halt whilst it seeks to raise money to fund its operations.
• Inghams Group Ltd (ASX: ING) has 8.7% of its shares held short, which is up slightly week on week once again. Last month this poultry producer’s shares hit a 52-week high, much to the dismay of short sellers. This followed a solid half year update, which revealed a 28.4% increase in underlying profit.
• AVITA Medical Inc (ASX: AVH) has seen its short interest rise week on week to 8.1%. Last month the medical device company reported a 56% lift in half year revenue to $10.2 million but a loss of $15.8 million. Disappointingly, the latter was 13% larger than the loss it recorded in the prior corresponding period.
• Resolute Mining Limited (ASX: RSG) has seen its short interest rise week on week to 8.3%. Investors have been selling the gold miner’s shares due to industrial disruption at its Syama operation. This has led to management forecasting further production declines and cost increases in FY 2021.
• Service Stream Limited (ASX: SSM) has short interest of 7.4%, which is up slightly since last week. Short sellers will have been celebrating at the weekend after the essential network services company’s shares lost over a third of their value following the release of a disappointing half year result.
• Metcash Limited (ASX: MTS) is back in the top ten with short interest of 7.2%. Short sellers are not giving up on this wholesaler despite its shares trading close to a 52-week high.
• Flight Centre Travel Group Ltd (ASX: FLT) is also back in the top ten with short interest of 7.2%. Last week the travel agent giant posted an underlying loss of $247 million for the first half.

More reading

• Why the Mesoblast (ASX:MSB) share price is on watch this week
• These were the worst performing ASX 200 shares in February
• ASX 200 Weekly Wrap: Friday carnage ruins last week of ASX earnings
• 5 things to watch on the ASX 200 on Monday
• These were the best performing ASX 200 shares last week

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Avita Medical Limited. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Avita Medical Limited, Flight Centre Travel Group Limited, and Service Stream Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Afterpay Ltd (ASX: APT) outlined explosive growth across all key metrics in its highly-anticipated first-half FY21 results announced last Thursday. 

However, the Afterpay share price failed to match its impressive results, diving by more than 20% last week. We can attribute part of this slump to weakness in the broader market, especially the recent tech and growth driven selloff. 

As the Afterpay share price is hovering around a two-month low, here’s what Goldman Sachs thinks it’s going to do next. 

Goldman Sachs neutral on the Afterpay share price 

On 26 February, Goldman described the Afterpay result as ‘solid’ with increasing scale driving unit economics. 

The broker points to an increasing frequency of use as a driver of strong unit economics, which will help the company offset the opex investment required to further scale its United States and European Union businesses. 

Goldman believes that strong customer growth and frequency of use remain two of the most important metrics for Afterpay, given they indicate product/market fit with consumers.

The broker has observed that the frequency of use trends in the US and UK are lagging but impacted by a much more rapid customer growth rate.

Conversely, the Australian and New Zealand markets show that high customer growth can mask the frequency of use trends, which accelerate sharply as customer growth slows. The ANZ region experienced much of its explosive customer growth in FY18, which saw the platform’s frequency of use growth fall as low as 6% in 2H18.

As customer additions slow in FY20/21, frequency of use growth has picked up to 19%, 23% and 30% in 1H20, 2H20 and 1H21, according to Goldman Sachs Global Investment Research. 

Rising costs for Afterpay 

Goldman has also pointed out that Afterpay is spending more to acquire customers, but given a short pay-back period of ~1 year, it is still value-accretive given the long-term frequency of use trends. The broker’s data cited approximately $4.78 in marketing dollars per new customer added in FY18, ramping up to $21.42 in 1H21. 

Looking ahead, Goldman still expects Afterpay to incur substantial cost investment as it scales in North America and the EU. According to Goldman’s estimates, opex is expected to increase to $399.9 million, $530.3 million and $656.7 million in FY21/22/23. This compares to the FY20 opex of just $228.8 million. As a result of rising expenses, the broker slightly downgraded the company’s FY21 and FY22 earnings estimates. 

Overall, Goldman remains neutral on the Afterpay share price, with a 12-month price target of $127.60.

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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Will the Afterpay (ASX:APT) share price go higher in 2021? Here’s what Goldman Sachs thinks. appeared first on The Motley Fool Australia.

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