Afterpay bucks ASX trend, with share price soaring after Tencent investment

Shares in buy-now-pay-later mainstay Afterpay have surged, after the fintech secured substantial investment from Tencent, the Chinese tech giant and parent of WeChat.

On Friday, Afterpay announced Tencent had purchased a 5% stake in the business, causing its share price to surge some 35%, before closing at 23.8% higher.

The investment and subsequent spike in share price bucks the ongoing trend of a depressed ASX, but also flies in the face of the economic challenges in Australia and around the world caused by the COVID-19 pandemic, which are largely expected to see retail sales decrease.

In a joint statement, Afterpay founders Anthony Eien and Nick Molnar said the investment is “testament to our team and the strength of our differentiated business model”.

While saying they’re looking forward to learning from their new investor, they also noted potential to collaborate on new technology and future payment options, and on “geographic expansion”.

Tencent’s chief strategy officer James Mitchell said in a statement the Afterpay model “aligns so well with consumer trends we see developing globally”.

Afterpay has been eyeing international expansion plans since June last year.

Speaking to the ABC, RBC capital markets analyst Tim Piper suggested this investment represents a vote of confidence in Afterpay, but also in the industry more broadly.

He also noted the increase in share price could be linked to a suggestion the Aussie business could be on track to expand into the Asian market.

“We believe the big prize here, and what the market should be excited about, is expansion into Asia,” Piper said.

“However, this is likely a longer-term objective, and at this stage it is hard to know what kind of product partnership (if any) Tencent will eventually pursue.”

Founded in 2014, Afterpay sparked the local buy-now-pay-later trend, paving the way for competitors such as Zip, Openpay and Payright.

But, questions have been raised about whether the service works for merchants, which can pay surcharges of between 3% and 6% on buy-now-pay-later transactions.

Estimates for the 2018-19 financial year suggested the value of BNPL payments in Australia had surged to hit the $6 billion mark. Afterpay, the biggest player in Australia, makes about 80% of its revenue from merchants.

The business, however, maintains that the benefits of the service far outweigh the costs, instead painting it as a valuable referral channel for retailers.

In January, the BNPL industry self-published a code of conduct. While the code promised a cap of late fees for consumers, and outlawed targeting the financially vulnerable, it made no mention of high commission fees for small businesses, or rules that prevent them passing those fees on.

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