Is Affirm (AFRM) on course to become the next PayPal?

Highlights

  • Affirm's active merchants grew by 412% to around 29,000, including many newly incorporated Shopify retailers, in Q4 of FY 21.

  • Companies like Amazon, Shopify, and Walmart are collaborating with Affirm for its sales tool. Walmart recently said it will replace its consumer-credit system with Affirm's BNPL service.

  • Affirm's total revenue jumped 71% YoY to US$261.8 million in Q4 FY21, driven by its network revenue and interest income.

Affirm Holdings (NASDAQ: AFRM) stock has been drawing attention from Wall Street investors following its collaborations with the likes of Amazon, Shopify, and Walmart.

Although it has recently unveiled major plans for its foray into the buy-now, pay-later industry, it appears to have set its eyes much beyond the appeal for BNPL.

The California-based Affirm unveiled several new products at a recent investor summit which suggest its desire to go beyond its short-term goals, perhaps looking at competing with big firms like Paypal and Visa. But does Affirm has the means to grow into a giant fintech company eventually?

Let’s explore its strengths and whether it can take on the bigger, established fintech brands in the future.

Affirm's growing network

Affirm has been rapidly expanding its merchant network besides adding individual customers. So, it is probably already eyeing a bigger share in the retail landscape. Moreover, Affirm's products were well-received in the market so far, given the growing number of customers falling for them.

In the past, credit card companies were the only major players in the short-term lending business. But now, BNPL companies have become increasingly popular.

                   

Will Affirm (AFRM) become the next PayPal?

 

Affirm offers a fixed number of installments for purchases. It also does not charge fees or interest. Hence, customers would want to buy more often or spend more on every order.

No wonder why more merchants are willing to partner with Affirm. Companies like Amazon, Shopify, and Walmart are already collaborating with Affirm for its sales tool.

Affirm's active merchants grew by 412% to around 29,000, including many newly incorporated Shopify retailers, in Q4 of FY 21. Besides, its active consumers increased by 97% to 7.1 million.

Walmart had recently said that it would replace its consumer-credit system with Affirm's BNPL service.

These top three e-commerce firms accounted for more than 50% of all e-commerce sales in 2020, and their collaboration with Affirm is likely to provide a major tailwind to the fintech company.

Also read: Will these Chinese stocks benefit from a Biden-Xi summit?

Affirm’s collaboration with big retail and e-commerce companies likely to give a major push to its business.

Source: Pixabay

Also Read: Why did Oatly (OTLY), Arrival (ARVL) stocks pop in intraday trading?

New products

Affirm has unveiled several new products and services at a recent investor forum. However, the primary draw was the Affirm Card, which can be linked to a consumer's bank account.

Consumers can use the Affirm Card to make payments just like they do with a debit card. But they will have more options like converting a transaction into BNPL installments.

The company has also unveiled a SuperApp for smartphones. It offers a variety of financial services to customers. These projects show Affirm's intention to foray into the consumer finance ecosystem. These two options together would enable consumers to store and borrow funds from its platform.

Also Read: Are these stocks safe from inflation, currency fluctuations?

Growth potential

Affirm’s collaboration with big retail and e-commerce companies is likely to give a major push to its business, although not every online customer might opt for BNPL.

Affirm's total revenue jumped 71% YoY to US$261.8 million in Q4 FY21, driven by its network revenue and interest income. Its gross merchandise volume, or GMV, was US$2.5 billion in the quarter, an increase of 106%. In addition, its fiscal 2021 GMV was US$8.3 billion, up 79%.

However, its operating loss was US$124.7 million compared to an operating income of US$39.3 million in Q4 of FY20.

Affirm CEO Max Levchin said that more customers are choosing its product due to the diverse payment options it provides.

The Affirm (AFRM) stock was up 2.46% to US$136.985 at 1:49 pm ET on Thursday.

Bottomline

The fintech sector grew rapidly over the past few years, especially during the pandemic when their services were in high demand. The simplicity of their banking services has drawn more customers towards them. However, investors should evaluate the stocks carefully before investing.

Comment


Disclaimer