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The Pushpay Holdings Ltd (ASX: PPH) share price could be one to think about for the long-term at the current level.

What is Pushpay?

Pushpay is a business that provides donation tools for large and medium US churches. It also has church management tools which were boosted by the acquisition of Church Community Builder.

But that’s what it does. These are reasons why Pushpay could be one to think about:

Valuation

The value investors get when they buy shares is an important part of the investment return potential.

Share prices change every day. Over the weeks, valuations can change quite significantly. This can open up new opportunities for people to think about.

Since 27 July 2021, the Pushpay share price has fallen by around 7.5%. That means investors can get a lower price than a couple of weeks ago.

According to Commsec, the Pushpay share price is valued at under 27x FY23’s estimated earnings.

Ongoing growth and expansion of the business

The business continues to grow in multiple ways.

In FY21, total processing volume increased by 39%, or US$1.9 billion, to US$6.9 billion. Management are expecting continued growth in total processing volume driven by continued growth in the number of customers using its donor management system, further development of its product set resulting in higher adoption and usage, and increased adoption of digital giving in its customer base.

The total customers increased by 2% to 11,099 over the last year.

Pushpay has seen a “clear shift” to digital means where customers (churches) are utilising its mobile-first technology solutions to communicate with their congregations. During the particularly-affected COVID-19 periods, churches pivoted to emphasise live streaming, digital giving and driving connection through their apps for continued engagement with communities. The company hasn’t seen a meaningful proportion of digital giving revert to non-digital means, suggesting that the US faith sector may have gone through a fundamental technological shift.

Using the stock split-adjusted price, the Pushpay share price went as high as $2.19 in July 2020 as the company assisted churches during lockdowns in the US.

The business is seeing an increasing number of customers utilising the combined Pushpay and Church Community Builder platforms. Management believe this shows the market values a fully integrated solution. ChurchStaq sales as a percentage of total sales have increased following its launch in September 2020 across all customer segments.

Pushpay is going to invest for more growth in the Catholic segment with an initial investment of US$6 million to US$8 million in FY22 for product design, development, sales and marketing.

In FY22, the company is expecting earnings before interest, tax, depreciation, amortisation, foreign currency and impairments (EBITDAFI) of between US$64 million to US$69 million. In FY21 it made EBITDAF of US$58.9 million.

Operating leverage from the growth

Pushpay expects significant operating leverage to accrue as operating revenue continues to increase, while growth in total operating expenses remains low.

FY21 saw operating revenue increase by 40% whilst total operating expenses increased by 9%. As a percentage of operating revenue, total operating expenses improved by 11 percentage points from 47% to 36%.

Pushpay’s net profit grew 95% to US$31.2 million and operating cashflow grew 145% to US$57.6 million.

Management said that Pushpay’s cash flow provides flexibility, as it continues to assess further potential strategic acquisitions that broaden Pushpay’s current proposition and add significant value to the current business.

Higher profit margins could mean faster profit growth as revenue rises, which could also help the Pushpay share price.

The post 3 reasons why the Pushpay (ASX:PPH) share price could be a top buy appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended PUSHPAY FPO NZX. The Motley Fool Australia owns shares of and has recommended PUSHPAY FPO NZX. 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 tough run for the A2 Milk Company Ltd (ASX: A2M) share price continues. Shares in the Kiwi dairy group are down more than 18% to $5.86 in the past month after falling 1.8% on Monday.

So, why is one of the ASX’s former growth darlings under pressure right now?

What’s dragging on the A2 Milk share price?

One place to look when trying to understand the reasons behind share price movement is price-sensitive ASX announcements. These can provide an indication of recent company-specific news like earnings updates, financial guidance or acquisition news.

However, A2 Milk hasn’t released any price-sensitive announcements since back in May. So, it pays to zoom out a little and look at the broader operating environment for the Kiwi dairy company.

One leading broker isn’t bullish on the company’s near-term prospects. In fact, according to a recent broker note, Credit Suisse has retained an underperform rating and a $5.50 per share price target. That’s largely thanks to forecast weak demand weighing on near-term earnings.

Uncertainty over A2 Milk’s China sales is the main concern here. Daigou sales channels have dried up, regulatory risk has increased and A2 Milk’s earnings prospects have taken a hit as a result.

According to a recent Bloomberg article, a local Chinese media group reported that “some experts are concerned by marketing that is making mothers choose milk powder over breastfeeding”. Fears of regulator intervention hit local and international infant formula stocks following the news.

That’s because regulatory intervention is likely to be bad news for companies like A2 that rely on China as a cornerstone market for their products. The A2 Milk share price fell lower following the reports which have been a major catalyst for recent underperformance.

Foolish takeaway

Recent earnings downgrades thanks to deteriorating China sales have hurt the A2 Milk share price.

While there have been no recent announcements from the Kiwi dairy group, the operating environment in China is getting tougher.

Investors will be hoping the company can turn things around and reinvigorate its sales strategy sooner rather than later.

The post Here’s why the A2 Milk (ASX:A2M) share price is down 18% in a month appeared first on The Motley Fool Australia.

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. 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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Unfortunately many times human nature works against wise investing.

One particularly stubborn trait that people show is not being flexible in their opinions, according to Forager Funds chief investment officer Steve Johnson. 

After all, this very human characteristic is the whole basis of politics and prejudice.

“Whatever the topic, humans form their opinion early on. And the vast majority of them refuse to budge,” he said in a letter to clients. 

“No matter how much contradictory evidence they receive, especially if their reputation is closely intertwined with a prior view.”

But this rigidity is antithetical to success.

“Philip Tetlock and Dan Gardner’s book Superforecasting: The Art and Science of Prediction devotes chapters to showing how the world’s best forecasters constantly adapt their predictions as new information arises, sometimes dramatically,” Johnson said.

“When it comes to investing, our inability to recognise that our prior opinion was wrong can prove extremely expensive.”

Johnson still struggles with this human trait

The last 18 months is a prime example of people around the globe struggling with their innate desire to stick to their guns.

“Do masks work? Do lockdowns work? Are lockdowns worth the economic impact? Do vaccines work? Will it be a V-shaped recovery or a U-shaped recovery? Are stock markets overvalued or undervalued?”

Even as an expert professional investor, Johnson still struggles with this basic human nature.

“It was psychologically painful to change my view when writing for The Intelligent Investor. It isn’t much easier as a relatively transparent fund manager,” he said.

“And all of my prognostications and presentations about the importance of understanding human psychology hasn’t always stopped me succumbing to the pitfalls.”

Share market glorifies those who predict the future

Despite knowing that rationally no one knows what will happen in the future, the investing world still pays much attention to fortune tellers.

“It is incredibly hard in a society and an industry that glorifies people who claim to know the future. But recognising that we are often wrong is one of our greatest competitive advantages,” said Johnson.

“A big part of my job as Forager CIO is creating an environment where people are encouraged to change their mind — and where I help them recognise when that needs to happen. Psychological bias is much easier to see in other people than it is to notice in yourself.”

The share price for Forager Australian Shares Fund (ASX: FOR) has rocketed up more than 90% over the past year. The unlisted Forager International Shares Fund returned 69% for the year ending 31 July.

The conscious effort to be open to changing one’s opinion was a major contributor to Forager Funds’ recent success in wild times, according to Johnson.

“It helped us recognise when our own assumptions were wrong and, in many cases, allowed us to take advantage of others’ unwillingness to accept mounting evidence that didn’t align with their prior view,” he said.

“It is an attribute that is only becoming rarer in a world of armchair experts.”

The post The ‘extremely expensive’ habit that can kill your investments appeared first on The Motley Fool Australia.

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• Why the CBA (ASX:CBA) share price will be on watch today
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• At today’s REA Group (ASX:REA) share price, is it time to buy?

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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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The Commonwealth Bank of Australia (ASX: CBA) share price will be one to watch on Tuesday morning. This comes after media reporting that Australia’s largest bank could boost its dividend to shareholders tomorrow.

The bank may also be poised to unlock $5.5 billion to buy back its shares through a series of off-market trades, according to reports.

At yesterday’s market close, CBA shares finished the day up 1.15% to $104.94.

Could CBA reward shareholders even more?

Investors will have their eyes peeled for the company’s FY21 financial results release tomorrow, with CBA shares in the spotlight.

According to the Australian Financial Review, the bank could boost its dividends payments to a reported $3.5 billion. This is in stark contrast to when the company declared a dividend of 98 cents for the 2HFY20 period. The result was an Australian Prudential Regulation Authority (APRA) rule that saw CBA preserve capital as a buffer against potential COVID-19 losses.

CBA had a difficult last year. The big bank had to navigate through the pandemic, which saw a large chunk of its loan payments deferred.

Last week, Goldman Sachs released a broker note forecasting the bank will substantially increase its dividend to finish FY21 out. As such, the investment firm is predicting CBA to pay a final dividend of $1.95 per share, plus a special dividend of $2.00 per share. This equates to a total payment of $5.45 for the entire FY21 financial year, representing a dividend yield of 5.2%.

It is worth noting that CBA’s position could change given the rapidly evolving situation with COVID-19. As such, Goldman Sachs noted, “there may be some risk to both the timing and magnitude of capital management”.

Do brokers think the CBA share price is a buy?

A number of brokers rated CBA shares with varying price points between July and August.

Goldman Sachs put a sell rating on CBA shares, reducing their 12-month price target to $81.87.

Australian investment house Morgans raised their rating by 4.1% to a bearish price of $76.00 per share. Whilst Bell Potter looked the other way, with a bullish price target of $105.00 for CBA shares.

The post Why the CBA (ASX:CBA) share price will be on watch today appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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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The CSL Limited (ASX: CSL) share price edged 0.36% lower to close at $296.87 on Monday. Shares in the Aussie biotech have managed to climb higher so far in 2021 but have still underperformed the S&P/ASX 200 Index (ASX: XJO) thus far.

With vast swathes of Australia currently subject to tight COVID-19 restrictions, let’s see how one of Australia’s largest companies has changed in value throughout previous lockdowns.

What happens to the CSL share price during lockdowns?

Let’s wind the clock back to February 2020. As COVID-19 spread across the world, most Aussie shares were in freefall in the March bear market. CSL was not immune from the downturn and fell 19.5% from 20 February to 20 March.

The CSL share price largely recovered and hit $329.00 per share by April 2020. Since then, however, share price growth has been subdued.

Let’s consider recent lockdowns and how the ASX biotech share has performed in those times. For instance, Melbourne was subject to strict lockdown orders from August to October 2020.

The ASX biotech share did manage to climb 6.5% from the start of August to the end of October. It’s easy to think then that the CSL share price performs strongly during lockdowns.

However, this period also coincided with CSL announcing a vaccine partnership with the University of Queensland. While lockdowns can be extensive, there can also be many company-specific or macro events that impact share prices during those times.

Sydney’s Northern Beaches outbreak started just before Christmas last year. The CSL share price fell 4.8% lower throughout the month of December to close the year at $283.18.

Once again, however, the scrapping of the CSL/University of Queensland vaccine candidate occurred on 12 December and may have had a large impact on the share price.

What about the current Sydney outbreak?

While there have been shorter lockdowns in Perth, Adelaide and Melbourne in the intervening months, let’s take a look at the current outbreak in Sydney. The first case in the current outbreak was recorded on 16 June with lockdown restrictions from 24 June.

The CSL share price fell 9.8% from 21 June to 15 July. However, the ASX biotech share is up 7.9% since then to its current $296.87 per share level.

Foolish takeaway

For many companies, it’s hard to find direct correlations between share price movements and lockdown restrictions. That’s particularly the case for a company as large and varied as CSL, which also has a stake in the COVID-19 effort through its AstraZeneca production contract.

The CSL share price growth has been subdued in 2021. Shares in the Aussie biotech are up 4.16% year to date and 6.21% in the last 12 months. Investors will be watching closely to see where they are headed amid the current eastern seaboard lockdowns.

The post How does the CSL (ASX:CSL) share price perform during lockdowns? appeared first on The Motley Fool Australia.

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended CSL Ltd. 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 the current REA Group Limited (ASX: REA) share price, could it be time to consider the property portal business? It recently reported its FY21 result.

What does REA Group do?

It’s a multinational digital advertising business for property. It operates the leading Australian residential and commercial property websites, realestate.com.au and realcommercial.com.au. It also has a leading website for share property, flatmates.com.au.

But Australian property portals aren’t the only thing it does. Other operations include the mortgage broking franchise groups Smartline Home Loans and Mortgage Choice, as well as PropTrack – a leading provider of property data services.

Internationally, it has a controlling interest in Indian business Elara Technologies, which is the operator of Housing.com, Makaan.com and PropTiger.com. It also has leading portals in Hong Kong and China. REA Group has a large minority holding of Move Inc (operator of realtor.com) in the US and PropertyGuru which has property sites in Malaysia, Singapore, Thailand, Vietnam and Indonesia.

REA Group’s FY21 result

The business reported its FY21 result last week. It said that revenue was up 13% to $928 million. National listings were up 15% in FY21.

REA Group’s earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 19% to $565 million. Net profit went up 18% to $318 million and earnings per share (EPS) grew by 21% to $2.47. Excluding the impact of acquisitions, revenue increased 11% for the year, EBITDA including associates rose 21% and net profit went up 24%.

The company explained that strong cost management across the year resulted in core operating cost growth (excluding acquisitions) being contained to 3% year on year.

REA Group’s board decided to increase the full year dividend by 19% to $1.31 per share.

The company explained that Elara and REA Group’s Asian division continue to be impacted by COVID-19 effects. However, in FY21 Elara saw audience growth of 92% year on year and local currency revenue growth of 23%.

In America, realtor.com’s average monthly unique users for the fourth quarter grew 32% year on year to 106 million. Move’s equity accounted result positively contributed to the overall result, improving from a A$7 million loss in the prior year to a A$16 million gain in FY21.

REA Group share price drops

Since 5 August 2021 (the day before REA Group’s result), the REA Group share price has fallen around 8%.

REA Group gave an update regarding current trading with its FY21 report. Whilst it said that the Australian residential business will benefit from price increases which came into effect from 1 July 2021, listing volumes in July were down 3% year on year. Melbourne listings were up 3% while Sydney listings were down 22%.

The business continues to target positive full year “operating jaws” while increasing the level of investment to deliver its strategic initiatives.

Is it now good value?

There are a range of views on REA Group.

One view is that REA Group is fairly priced – Credit Suisse currently rates the REA Group share price as neutral with a price target of $152.50. The Sydney lockdown and listings decline is causing uncertainty.

But Morgan Stanley currently rates the REA Group share price as a buy with a price target of $185. The ongoing Sydney lockdown could cause downgrades, but the broker believes a recovery will occur once restrictions are lifted. However, according to Morgan Stanley, the REA Group share price is valued at 40x FY23’s estimated earnings.

The post At today’s REA Group (ASX:REA) share price, is it time to buy? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA 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 National Australia Bank Ltd (ASX: NAB) share price was on form on Tuesday.

The banking giant’s shares pushed 1% higher to $26.92 after announcing the acquisition of Citibank’s Australian consumer business for $1.2 billion.

This means the NAB share price is now up over 17% since the start of the year.

Can the NAB share price go even higher?

One leading broker that believes the NAB share price can still run higher from here is Goldman Sachs.

In response to its acquisition announcement, this morning the broker retained its conviction buy rating and $30.34 price target on the bank’s shares.

Based on the current NAB share price, this implies potential upside of 12.7% over the next 12 months before dividends. And if you include dividends, this potential return stretches to almost 18%.

What did Goldman say?

Goldman Sachs appears to be a fan of the acquisition and expects it to help the bank close the gap on its peers.

It explained: “We see strategic merit in the transaction, which would contribute to an improvement in the returns drag NAB has suffered vs. peers from being underweight Consumer Banking and having a Consumer Bank that relatively under-earns, given a lower exposure to unsecured lending.”

Goldman also expects a better return from this acquisition compared to if NAB had used the funds to buy back shares.

“We calculate that the transaction would result in a c. 1.5% better EPS outcome than if the equivalent capital was bought back on-market,” it added.

The broker concluded: “With the transaction not expected to close until Mar-22, and still subject to various regulatory approvals, our earnings remain unchanged, particularly given the integration costs are expected to be largely taken as below-the-line adjustments. Our Buy (on CL) remains unchanged reflecting: i) good exposure to the improving volume environment, ii) consistently strong NIM management, and iii) overall financial strength (provisioning, capital, and liquidity).”

The post Is the NAB (ASX:NAB) share price in the buy zone after its Citi acquisition? appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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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If you’re on the lookout for some growth shares, then you might want to look at the ones below. They are quality businesses which have been tipped as buys recently.

Here’s what you need to know about these top ASX growth shares:

Altium Limited (ASX: ALU)

The first ASX growth share to look at is Altium. It is the printed circuit board (PCB) design software provider behind the Altium Designer and cloud-based Altium 365 platforms.

In addition to this, the company has the Octopart search engine and the Nexus collaboration platform supporting the growth of the core business.

All these businesses have exposure to PCB design. And with PCBs found inside almost all electronic devices, they look well-placed to benefit from the explosion in electronic devices globally. This is being underpinned by the growing Internet of Things and artificial intelligence markets.

A note out of Credit Suisse reveals that the broker currently has an outperform rating and $42.00 price target on its shares. This compares to the latest Altium share price of $35.09.

Xero Limited (ASX: XRO)

Another ASX growth share to consider is Xero. It is a leading cloud-based full-service business and accounting solution provider which has been growing at a rapid rate in recent years.

Impressively, this strong form continued in FY 2021 despite COVID-19. Thanks to a 20% increase in subscribers to 2.74 million, Xero reported an 18% increase in revenue to NZ$848.8 million.

The great news is that 2.74 million subscribers is still well short of a cloud accounting subscriber total addressable market estimated at 45 million. This gives Xero and its world class platform a very long growth runway over the next decade and beyond.

The team at Goldman Sachs are positive on Xero. Thanks to its international expansion, the ongoing shift to the cloud, and the monetisation of its app ecosystem, Goldman believes the company could have a multi-decade runway for strong revenue growth. The broker has a buy rating and $165.00 price target on its shares.

The post 2 excellent ASX growth shares rated as buys appeared first on The Motley Fool Australia.

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Motley Fool contributor 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 and has recommended Altium and Xero. The Motley Fool Australia owns shares of and has recommended Altium 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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Could the Westpac Banking Corp (ASX: WBC) share price be good value at the moment?

Westpac shares haven’t moved much over the last month. However, it has done a bit better over the last six months – it’s up 15%.

What has happened for the bank recently?

In recent weeks the bank has been busy with strategic decisions and executing divestments with various smaller parts of its business.

It recently completed the sale of its vendor finance business. Westpac also has announced the sale of a number of businesses.

The major bank announced at the end of June 2021 that it is selling it’s motor vehicle dealer finance and novated leasing businesses to Angle Finance. It will retain its existing retail auto loans of around $10 billion originated by the businesses being transferred. These loans will run down in the normal course of business over the life of those loans.

Westpac is also selling its Australian life insurance business to TAL for $900 million, whilst also entering into an exclusive 20-year strategic alliance for the provision of life insurance products to Westpac’s Australian customers. The transaction sees Westpac exit manufacturing life insurance products and releases “significant” capital back to the bank, with a total accounting loss on sale of $1.3 billion after tax.

It’s also selling its New Zealand life insurance business to Fidelity Life for NZ$400 million and is entering into an exclusive 15-year agreement for the distribution of life insurance products to Westpac’s New Zealand customers.

However, the bank has decided to retain its Westpac New Zealand business.

The bank is also dealing with alleged fraud relating to Forum Finance which could have a potential exposure of around $200 million.

Some of the above sales are expected to increase the bank’s capital position. The board may be considering shareholder returns with the excess capital on the balance sheet, which could put the Westpac share price in focus.

What about Westpac’s profit?

The bank released its FY21 half-year result a few months ago.

It said that compared against the comparative period of the first half of FY20, statutory net profit jumped 189% and cash earnings increased 256%. The bottom line was assisted by the fact that loan provisions were implemented in 2020 due to COVID-19, but not repeated in FY21 (so far). It was the anticipation of bad loans that sent the Westpac share price spiralling downwards in the first half of 2020.

Excluding notable items, FY21 first half profit was up 60% to $3.8 billion.

This result gave the Westpac board the confidence to declare an interim dividend of 58 cents per share.

Is the Westpac share price good value?

The broker Citi certainly seems to think so. It has a price target of $30 on the bank, suggesting Westpac shares could rise by close to 20% over the next 12 months if the broker is right.

Citi thinks Westpac could implement capital initiatives for shareholders after its numerous divestments.

The broker also noted Westpac’s three-year plan of reducing its cost base to $8 billion by FY24.

Morgans is another broker that rates the Westpac share price as a buy. The broker thinks Westpac is valued at 13x FY22’s estimated earnings with a projected grossed-up dividend yield of 7.25%.

The post Is the Westpac (ASX:WBC) share price good value right now? appeared first on The Motley Fool Australia.

More reading

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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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Afterpay Ltd (ASX: APT) shareholders had an enviable dilemma after the blockbuster Square Inc (NYSE: SQ) acquisition was announced last week.

Sell or hold?

Do you cash in your profits and not take the risk of owning a US fintech? Do you hold on for further growth within the Square family?

Frazis Capital Partners portfolio manager Michael Frazis has been a fan of both companies for a long time. 

His fund was known to have held both, with Frazis loving the “customer love” of Afterpay and Square’s journey of creating a “closed loop” payment ecosystem.

But he had a surprise for his clients in a video update on Friday.

“We sold our Afterpay shares,” Frazis said.

“We sold after the acquisition announcement.”

Why Frazis sold all his Afterpay shares 

Why did Frazis’ fund sell off all its Afterpay stock?

It’s because it already holds Square shares, and the team felt like it took up enough of the portfolio.

“We owned about 6% in Square, which is one of our largest positions,” Frazis said.

“We’re going to maintain 6% or 7% in Square — the combined Square-Afterpay company — which we think is about right.”

Afterpay shares went as high as $160.05 in February. But the fact that it was sold to Square at about the equivalent of $126 says a lot, according to Frazis.

“It’s a full valuation… It gives you an indication of [co-founders] Nick Molnar and Anthony Eisen’s idea of where the value lies in buy now, pay later,” he said.

“They basically invented the sector. They made it what it was… So if they’re selling out at a certain price, it gives you a good indication of where they think the market is.”

Frazis did say “selling out” might be too harsh, as both executives will stay on and receive a large amount of Square shares rather than cash.

Square on its way to ‘The Holy Grail’ 

He added that Afterpay would take Square another step closer to creating the “holy grail” of payments where the entire end-to-end payment process takes place within its ecosystem.

“If you can get customers buying things off merchants off your app, off your platform… you don’t have to go through the [incumbent] payment system, which is this whole byzantine archaic thing,” Frazis said.

“You have to pay all these different people, from Visa, Mastercard and so on, and switches. It’s horrible technology.”

In return for a terrible system, the incumbent middle men take a large margin out of every transaction between merchant and customer.

“Even today, if you set up an online store you can be paying 2%, 3%, 4% of transaction fees, which is crazy.”

He remembered in the early days of Afterpay the sceptics wondering why retailers would want to hand over 4% commission to the buy now, pay later provider.

“Then the data came out that showed there was increasing their basket size. That was a light bulb moment,” Frazis said.

“That was really the key to their success. It was being able to demonstrate value to merchants.”

The post Why we just sold all our Afterpay (ASX:APT) shares appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo owns shares of AFTERPAY T FPO and Square. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO and Square. The Motley Fool Australia owns shares of and has recommended 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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