Afterpay to the moon? Unlikely.
Aussie tech darling, Afterpay (ASX:APT)is up 856% from the lows it saw in March during the coronavirus shock and up 20% since the beginning of July.
The recent rally is mainly in response to Afterpays recent announcing of an 800 million capital raising, which consists of a $650 million fully underwritten institutional placement and a $150 million non-underwritten share purchase plan (SPP). The pricing of the placement will be determined through an institutional bookbuild, with an underwritten floor price of $61.75 per share. Although the pricing of the capital raising comes at a discount* to Afterpay's current share price, it's important to note that they only passed the $60 barrier at the end of June this year. To me, this means the Afterpay is certainly taking the opportunity to strike while the iron is hot by cashing in on the company's recent rally.Â
Afterpay also announced that co-founders Anthony Eisen and Nick Molnar will sell down 2.05 million shares each, which is equivalent to 10% of their respective holdings in the company. Using the floor price of $61.75 a share, the sale will provide Eisen and Molnar with roughly $125 million each. Not bad.
This sort of behavior from management is usually a red flag for shareholders, signaling misalignment between the management team and existing shareholders. I mean, why should you buy if management is running for the hills?Â
In this case, however, it seems like the pair remains to be reasonably aligned with shareholders' interests as they still own roughly 18.4 million shares each following the sale. With that said, it's important to keep an eye out for any future sales from management.Â
An intensifying competitive landscape in the 'buy now, pay later' space combined with Afterpays eye-watering valuation, not to mention the end of stimulus programs like Jobseeker and Job Keeper in September will make for an interesting few months ahead for the company.Â
*ASX:APT share price as of 4 PM on the 15th of July 2020.