Buy now, pay later (BNPL) has become a trendy choice among young consumers seeking flexible payment options devoid of credit card debt woes. These loans are assessed per transaction, providing borrowers with better debt control and transparency. Moreover, most BNPL loans come free of interest.
Affirm (NASDAQ: AFRM) stands at the forefront of companies vying for supremacy in this domain, with industry projections indicating over 24% annual growth in the U.S. by 2030.
Forging Forward with Partnerships and Product Innovation
Approaching the BNPL business is easy, but thriving in it demands excellence. Evidently, Apple ventured into the BNPL arena last year but exited just recently, opting to collaborate with Affirm instead. Noteworthy is Affirm’s successes in partnering with prominent retailers to swiftly reach a vast consumer base.
Affirm serves around 18.6 million consumers, offering BNPL services to sellers on Shopify, e-commerce titan Amazon, and over 303,000 merchants. The company’s revenue stems from a mix of interest-bearing loans and merchant fees, with transaction volumes rising steadily over time. Notably, Affirm recorded a $7.2 billion gross merchandise value in the last quarter, marking a 31% annual increase.
While BNPL presently dominates e-commerce, its scope is expanding. Anticipated growth encompasses increased point-of-sale opportunities in the forthcoming years, a field where Affirm has already made strides by introducing a physical charge card. The Affirm Card, functioning like a debit card, enables users to split transactions into BNPL loans either at the time of purchase or retroactively. Introduced in 2021, the card presently boasts 1.2 million users.
Navigating Towards Profitability
Although Affirm remains in the red, it is marking new achievements. Recently, the company achieved a non-GAAP operating profit, signaling progress towards profitability. As CEO Max Levchin addressed in the latest shareholder communique, “The route to any profitability goal is simply more transactions.”
Image source: Affirm Holdings.
Affirm’s promising trajectory boosts confidence in its potential shift towards profitability. Additionally, the company holds a substantial $2.1 billion in cash and has generated over $290 million in free cash flow in the past year.
A Potential Titan in Wealth Creation? It’s a Wait-and-Watch
Affirm’s future prosperity hinges on two critical queries:
- How extensively will BNPL supplant conventional credit cards, dictating the market’s size?
- Where will Affirm position itself amidst competitors, defining its slice of the market?
Encouragingly, the financial services realm is a multitrillion-dollar industry. While some payment entities hover in the hundreds of billions realm, Affirm sits at a modest $15 billion valuation today. Envisioning a future where millions embrace Affirm’s card and BNPL services is plausible.
The prevalent adoption of BNPL among younger demographics, spanning millennials and Gen Z, augurs well for the industry’s future. Affirm’s robust ties with retailers, especially Apple, hold significant weight in securing market share amid the sector’s evolution this decade.
Valuing Affirm’s stock relies heavily on its financial metrics, further complicated by the industry’s early stages. Nevertheless, if Affirm sustains its growth pace over the next five years and cements itself as a household brand among consumers, it could potentially evolve into a multibagger stock. While certifying it as a millionaire-making opportunity remains uncertain, Affirm undeniably brims with long-term promise.
Seizing a Rare Shot at Lucrative Prospects
Ever regret missing opportunities with the most lucrative stocks? Here’s something you won’t want to overlook.
Occasionally, our expert analysts issue “Double Down” stock recommendations for companies primed for a surge. If you fear you’ve missed the investment boat, now marks the prime moment to invest before it’s too late. The results speak for themselves:
- Amazon: a $1,000 investment during our 2010 “Double Down” call would yield $21,266!*
- Apple: a $1,000 investment following our 2008 “Double Down” advice would soar to $43,047!*
- Netflix: investing $1,000 during our 2004 “Double Down” guidance would amass to $389,794!*
We are currently issuing “Double Down” notifications for three exceptional companies, presenting a rare chance unlikely to recur soon.
Discover 3 “Double Down” stocks »
*Stock Advisor returns as of October 14, 2024