Over the last few years, companies have tried to revolutionize the way consumers shop. While credit cards have facilitated consumers’ ability to purchase products with debt, several entities have launched affordable payment services via the Buy Now, Pay Later, or BNPL model. The COVID-19 pandemic has accelerated the adoption of BNPL services, in-part because these arrangements can allow customers to purchase more or costlier items than they could otherwise and can also ease the costs of smaller ticket items.
A report published by Allied Market Research estimates the global BNPL market will hit $3.98 trillion by 2030, up from $90.69 billion in 2020, indicating an annual growth rate of 45.7% over this period.
The bull case for Affirm
Affirm Holdings in San Francisco is a BNPL platform that operates in the U.S. and Canada. Its suite of products and solutions also includes point-of-sales payment solutions. The company’s payments network and partnerships with banks allows consumers to pay for product purchases over time.
At the end of its second fiscal quarter of 2021, Affirm partnered with 29,000 merchants, up from just 6,500% in the year-ago period. The company’s gross merchandise volume in its fiscal year 2021 (ended in June) rose by 79% to $8.3 billion, while active customers rose 97% to 7.1 million.
Affirm recently disclosed a partnership with Amazon in which the e-commerce heavyweight will allow the Affirm to offer financing options to buyers at checkout. Further, Affirm already has a deal with Shopify that has close to 1.7 million merchants on its platform. The two deals increase Affirm’s addressable market at an impressive rate. For example, the gross merchandise volume on Amazon and Shopify stand at $443 billion and $151 billion, respectively, over the last 12-months.
Affirm is also in the process of launching an Affirm Card that will allow users to avail themselves of the BNPL service at other retail locations.
Valued at a market cap of $40 billion, Affirm is expected to grow its sales by 37.7% to $1.2 billion in its fiscal year 2022 and by 44% to $1.73 billion in fiscal 2023. But these estimates do not account for its partnership with Amazon. Further, Affirm is also expected to narrow its loss per share from $2.72 in 2021 to $0.52 in 2023.
Square is all set to acquire Afterpay for $29 billion
Afterpay is an Australia-based BNPL company. In its fiscal year 2021, Afterpay’s underlying sales rose by 102% year over year to $21.1 billion, while its total group income was up 78% at $924.7 million. Its revenue growth came on the back of a 63% increase in the number of active customers that rose to 16.2 million. Its integrated merchant network now exceeds 100,000 and rose 77% in fiscal 2021.
In August 2021, fintech giant Square announced it will acquire Afterpay for $29 billion. Currently, Afterpay is valued at a market cap of more than $25 billion.
The final takeaway
Given Afterpay’s acquisition deal with Square, the stock has limited upside potential. It might gain less than 20% considering the acquisition price. If the deal falls through, the stock will experience a sell-off. Conversely, despite its steep valuation, Affirm is a top stock right now due to its deal with Amazon and stellar revenue growth.
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AFRM shares were trading at $148.47 per share on Thursday afternoon, up $2.34 (+1.60%). Year-to-date, AFRM has gained 52.68%, versus a 19.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...
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