In this section we look at two stocks that we think are the fastest growing stocks of 2018. The risks are now to the upside and we believe investors should hold these two stocks for capital growth. As usual we give them the unconventional assessment.
Afterpay Touch (APT) – It’s the Gen-Y Credit card. Don’t have enough money to pay for that Luitton Vuitton bag in one upfront payment? No worries, buy now pay later, interest free. YOLO. So easy. But how? It’s all very simply. Jump onto Afterpay. Complete a quick application on your phone and you’re ready to start buying things you can’t afford. Pay back weekly, fortnightly or monthly. It’s that simple. Afterpay allows customers to split payments into four easy instalments at a future date. It’s a brilliant way to make it easier for customers to buy now and pay later. It is pretty much a user friendly alternative to a credit card that retailers can offer their customers. A quasi layby system. It’s done without having to pay a final amount above the original purchase price due to interest or fees. Great. A brilliant way to get yourself buried in debt. Afterpay has been around for a good year now and they’ve signed up almost every retailer you can think of. Well-known fashion brands have signed up such as General Pants Co, Sutfstitch, Aquila, Myer… the list goes on and on. The company listed mid 2016 at $1.00 under the company name Afterpay (AFY). The fintech startup quickly went gangbusters. The company raised $25m to fund product development, marketing, and general costs. Its monetisation strategy is a scalable business model that charges retail merchants not customers. However late fees for customers that don’t pay on time represents about 17% of its revenue. The buy now pay later shopping phenomenon is so popular that it has quickly amassed a customer base well in excess of 1.5 million who are mostly Gen-Y’s and millennials. However, there are downsides. Consumer advocates are concerned that many customers cannot repay their debts and this system introduces a whole new plethora of problems. Afterpay charges hefty fees for those that default on their payment due to insufficient funds. But that’s a different conversation for a different day. Funds are collected via direct debit and the company evaluates customers’ credit worthiness based on their transaction and repayment history. This leaves the company open to substantial customer default risk. In the event of a GFC, the company could be left with a massive pile of bad debts that customers simply cannot repay. It has limited methods of recourse in the event of default.
We’ve like this stock since its founding days. It’s come a long way since listing. The Melbourne-based fintech start-up struck gold after agreeing to merge with Touchcorp. The deal boosted the company’s value to $500 million (Afterpay $400m & Touchcorp $100m). The merger created a combined entity that could scale into new markets and grow a lot quicker. Touchcorp is the one behind prepaid calling cards, gift vouchers, lottery tickets and phone credit. It also looks after the online payment solutions and the underlying platform that Afterpay uses. A merger makes absolute sense. Shares listed again at $3 and are now trading at $7.62. Since the merger shares have here’s no stopping Afterpay Touch Group (APT).
This week the company issued a business update for the December Q which sent shares soaring. APT posted strong underlying growth with:
- Underlying quarterly sales of $551m up from $367m in Q1 FY18.
- Underlying sales of $918m for H1 FY18 up from $145m in H1 FY17.
- Tracking in excess of $2bn on an annualised basis based on recent quarterly performance.
- Approximately 11,500 merchants now on-board.
- Currently over 1.5m customers up from 1.1m at the end of Q1 FY18.
- Customer growth grew by 4,000 new customers per calendar day.
- Repeat transactions per month have been maintained at well over 80%.
- In-store footprint is now in excess of 5,000 shopfronts
- During the remainder of FY18, Afterpay will look to further expand
These numbers are staggering in such a short time. We think this stock will only continue to dominate. The APT model is highly scalable and it’s a cash cow that is growing exponentially. Sure it carries substantial risks but that’s the game. The company is yet to turn a profit. It expects revenue for the six-month period to 31 December 2017 to be around $60m and EBITDA in the range of $11m-$12m. It will post its results mid next month. The other worry is that its barriers to entry are quite low. The fintech payments space is the hottest pace at the moment, with savvy entrepreneurs searching for ways to disrupt the playing field. Whilst Afterpay is the leader, competition is heating up. ZipPay (ZML) is also in the space, doing the same thing. We like the business and we think this stock still has significant upside potential. Buy now.
LiveTiles (LVT) – Originally an Aussie start-up, the company is now a $200m ASX listed company. Driven by its vision to create a user-centric platform to help organisations collaborate, founders Karl Redenbach and Peter Nguyen-Brown imagined the concept of software that prioritises the human experience without compromising function. What does that all mean? It means the duo have created a program that gives employees the ability to organise scattered business apps, resources, files and more on a single pane of glass over Office 365, SharePoint and Azure. Products include LiveTiles SharePoint, a digital workplace suite of LiveTiles Design, Build and Blueprint; LiveTiles Mosaic for education, free to K-12 schools; LiveTiles Cloud, the Azure-hosted version of LiveTiles SharePoint. But the big ticket announcement came in December when Microsoft’s Bill Gates took a liking into the software during a conference last September. Following strong interest from Microsoft, the company was asked to present in October. LiveTiles then announced the launch of a campaign with Microsoft to roll out LiveTiles AI Technology through its major US channels. LVT’s software will allow Microsoft customers (basically everyone) to take their first step into the AI world via LiveTiles Bots. LiveTiles Bots use AI technology to create and deploy customised AI assistants. This removes the time, cost and risk barriers to implementing customised AI inside businesses. LiveHire Bots is a no-code bot builder that gives anyone the ability to create an AI tool based on their needs. In other words AI assistants can be tailor-made to suit any team or function in an organisation. For example you could create an AI assistant to automate HR-related Q&A. Following this, the company launched RAISE which stands for Retail Artificial Intelligence Solution. This software will help retail sales with planning data, revenue, profit margins, turnover stats and customer trends. It will enhance retail experiences on both sides of the register and provides AI powered chatbots and analytics solutions for retailers and their employees. It will also create a personal shopping assistant that will allows a store manager to find out anything about his staff or products in real time. The benefit? Decisions that were once base on instinct can now be made using accurate, fast, real-time data. The product will be exhibited at the National Retail Federation 2018: Retail’s Big Show in New York City where some 35k people and 18k retailers will attend.
LiveTiles is one of the fastest growing tech startups on the ASX. Since the Microsoft deal in December 2017, the stock has doubled from 23c to 46c. Not bad. With Bill Gates on its side, the company is in a commanding position that should see its product grow exponentially. We believe the market hasn’t taken the upside potential into account, just yet. Once Microsoft rolls out the ‘LiveTile Bots’ software through its major channels in the US, it will really put the company on the map. AI is the next big thing. This software will bring AI to everyone, allowing people and organisations to rapidly deliver business value leveraging AI’s technology. What the company is effectively doing is using collaborative bots or cobots to work alongside employees. Robots that augment and help from all different tasks from booking meetings to booking travel to actually providing advice on issues. Its ground breaking technology. Microsoft customers will take their first glance into AI world via LiveTiles Bots. But this is only the start for LiveTiles, which is looking to secure a leadership position in the rapidly emerging AI industry. For that reason, we think LiveTiles is definitely a Buy but it does come with its risks.