'I was wrong on Afterpay': Big tech's fiercest critic lauds buy now, pay later darling

One of the fiercest critics of 'Big Tech', author and academic Scott Galloway, has admitted his bearish call on Afterpay was wrong and warned that America's internet giants are poised to consolidate power following the coronavirus pandemic.

Professor Galloway, who teaches marketing at NYU Stern School of Business and was author of The Four, has in recent years emerged as one of the leading critics of America's technology giants. He was introduced to Australian retail investors just over a year ago when he warned that shares of ASX-listed buy now pay later provider Afterpay could potentially halve in the face of greater competition from the likes of Visa and Mastercard.

Afterpay has struck a deal with Westpac that will see its 3.3 million customers in Australia able to open a banking account within the app. 

Afterpay was valued at $8 billion at the time but its shares have since surged and sailed past the $100 mark last week, pushing its market value up to $30 billion.

Mr Galloway told a select group of Australian journalists on Tuesday ahead of a virtual appearance at the Sohn Hearts & Minds conference that Afterpay deserved credit for its strong execution. “I thought Afterpay was a good company, I didn’t think it was strategically weak, I just thought it was overvalued,” he said.

“With a company like that I thought that other players, whether it’s Amazon or Square, would get into that business and it would face well-funded, deep-pocketed competitors.”

“To their credit (Afterpay) they have executed really well, good for them, we need more companies like them to innovate and maintain that momentum.”

“I was wrong on Afterpay and time will tell," he added.

Afterpay lost $23 million on revenue of $519.2 million last year, and its lofty valuation continues to draw doubters. At the same time, its share price success mirrors the growing trend of technology businesses dazzling investors with their story instead of their numbers.

According to Professor Galloway, the COVID-19 pandemic has added more fuel to that fire.

"Big tech has now really become more about the narrative than the numbers, if you think about the companies that have really accelerated (Tesla, Apple, Amazon) while their performance has been incredible the appreciation in their stock price has outpaced their underlying numbers."

"So in the case of Apple you have a company that really hasn't increased it earnings much in 18 months but its stock price is up almost 130 per cent in the last 18 months."

NYU professor Scott Galloway warned investors just over a year ago that shares of Afterpay could potentially halve.

"COVID is an accelerant and the companies that were tracking positively have been thrust forward by 10 years and the market is discounting them back at historically low interest rates."

As investors bet big on future potential, Professor Galloway warned that the post-pandemic environment is likely to see the big, incumbent tech companies further consolidate their power.

"It's a perfect storm of good things for (big tech), Facebook and Google benefit from the oncoming consolidation, while Apple and Amazon are benefiting from a move to recurring revenues."

"Each of these companies are trading at what look like historically high multiple on almost every metric."

“It’s suspect that Afterpay, whose clientele is Mastercard and Visa rejects, should trade at twice the multiple of the credit cards.” he warned last year.

This article was originally posted on The Age here.

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