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Afterpay Looks to Go Public in the US

In the latest example of the continued growth of the buy now, pay later space, Afterpay saw record sales in its third quarter, more than doubling total year-over-year sales (123 percent) on a constant-currency basis to 5.2 billion Australian dollars ($4 billion).

But now, the Australian company is eyeing the U.S. as its tentpole, unveiling in its earnings report that it is currently working with external advisors to explore options for a U.S. listing. Although Afterpay is listed on the Australian Stock Exchange (ASX) already, the U.S. now represents the company’s largest market.

While 31 percent of consumers in the U.S. have used a buy now, pay later service, according to a LendingTree survey, 25 percent of the users prefer Afterpay, neck and neck with Affirm (25 percent) and Klarna (26 percent) and behind PayPal (39 percent).

While it intends to remain an Australian-headquartered company, Afterpay said in the report that its shareholder base is increasingly becoming more globally focused.

Afterpay’s model allows customers to pay for items in four equal interest-free installments that are due every two weeks after an initial down payment at the time of purchase. If a payment is not processed on or before a due date, late fees will apply. There’s an initial $10 late fee, and a further $7 if the payment remains unpaid seven days after the due date. With 49 percent of buy now, pay later users having been charged late fees for missed payments before, the LendingTree survey said, Afterpay and its competitors must be more careful and clear about how they convey their fees as more consumers use their platforms.

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In its report, Afterpay notably didn’t include any references to income or profit, which it would have to include in any U.S. filing. The company is still yet to turn a profit, and makes most of its money charging businesses a fee for each sale using its platform. In its first half report released on Feb. 25, the installment payments platform reported a net loss for the six months through December 2020 of 76.5 million Australian dollars ($60.5 million), compared with a 28.9 million Australian dollars ($22.3 million) net loss a year earlier.

During the third quarter, Afterpay nabbed a number of marquee brands, including Lululemon, Urban Outfitters, Anthropologie, Bed Bath & Beyond, Vince and Vera Bradley. In total, active merchants increased by 77 percent year over year to 85,800, up from 48,400 a year prior, with a number of major enterprise retailers launching across all regions during the period.

These top fashion retailers joining Afterpay’s stable would likely get the most out of the partnership compared to other sectors. Clothing (38 percent) and shoes (24 percent) were the top two categories the 1,040 U.S. shoppers surveyed by LendingTree said they were most likely to finance using buy now, pay later.

Plus, these retailers would—at least in the shopper’s mind—ease their worries about paying too much. Forty-three percent of shoppers say they would use the payments alternative for more expensive purchases, so that they can spread the cost out over time. And 34 percent use the services to buy things they wouldn’t normally be able to afford, LendingTree said.

On a local currency basis, Afterpay’s sales in the U.S. and the U.K. were up 211 percent and 277 percent respectively, with North America jumping 167 percent to $2.6 billion, surpassing the Australia/New Zealand region for top percentage of sales.

But the potential listing comes at a time when competitors in the space are growing in spades and are gaining access to capital—Affirm already went public and Klarna and Zilch recently generated massive funding rounds, with the former reportedly exploring a direct listing after being valued at $31 billion.

With 14.6 million active customers globally, up 75 percent from last year, Afterpay is looking to distance itself from competitors including Zip Co/Quadpay, Sezzle and Splitit.

In the quarter, North America and the U.K. accounted for 9.3 million and 1.8 million active customers respectively.

The top 10 percent of Afterpay’s global customers now transact 33 times per year, or roughly three times per month, but Australia and New Zealand (ANZ) take the cake for most individual usage. ANZ residents in this bracket use the platform 62 times per year, while U.K. shoppers use it 29 times per year. The average U.S. consumer in the top 10 percent only uses Afterpay 23 times annually, suggesting that there is room for growth as the payments method catches on.

The company, under the Clearpay name it uses in Europe, launched in Spain, France and Italy in the quarter, and is on track to launch in Germany in the first half of 2022. Afterpay also has plans to move into Asia.

In March, Afterpay launched a payments card of its own exclusively in Australia, but it is not a physical card. It is a virtual, contactless Mastercard stored in shoppers’ mobile wallets, and can be used to tap at in-store payment terminals. Afterpay lets Australian consumers use the card to automatically pay for purchases in four equal installments.

More than 3.5 million U.S. customers have set up the Afterpay card to shop in person once it launches, the company says.

The company recently held its fifth bi-annual “Afterpay Day” to drive sales to nearly 3,000 retailers and spread awareness of the platform. Sales from the global sale increased 117 percent from the same period last year and were 36 percent higher than the August event. This was the first event in which Afterpay opened the sale to brick-and-mortar sellers.

The March Afterpay Day sale drove a 40 percent increase in new active customers globally, generated nearly 6 million referrals to merchants from the Afterpay Shop Directory and saw an average increase in basket size of approximately 10 percent.

Reuters reported that Afterpay has appointed Goldman Sachs to advise on the listing, although the tech provider has not confirmed the selection.

The company has not set a timeline for a board decision on a U.S. listing, and any listing would be subject to market conditions, approval by a U.S. exchange and would need to satisfy a number of other customary listing prerequisites.