s Affirm A Good Investment

Is Affirm A Good Investment For Investors In Buy Now, Pay Later?

With a couple of earnings reports under its belt, Affirm Holdings shows promise, but as a new fintech stock, will it be a good investment?

Buy now, pay later (BNPL) has been the subject of recent discussions in the fintech industry as many finance companies move to adopt this new-ish trend. Affirm Holdings (NASDAQ: AFRM) is one of the companies driving this trend, facilitating payment plans for many who do not have access to credit cards. 

But, with competition heating up in this industry, is Affirm a good investment right now? 

The bull case for Affirm

Affirm recently published its fiscal Q4 earnings report and whilst the report itself was a mixed bag, investors in the company were rather happy overall. Its stock has soared since then, up 41% since the report was published. 

In the report, Affirm showed strong revenue of $261.78 million for the quarter, up a huge 71% year-over-year (YoY), beating market consensus. In addition to its strong revenue, the company’s outlook paints a positive picture for the year to come. Expectations are high for its fiscal Q2 2022 revenue with estimates of between $240 million and $250 million, again higher than market consensus. For its entire fiscal year, 2022, the company is predicting revenue to sit between $1.16 billion and $1.19 billion. 

These are impressive numbers and show that Affirm’s growth is just about to kick up another gear as the trend for BNPL takes off. Indeed, the platform has increased the number of its active merchants by over 410% to 29,000. Whilst its active consumer grew 97% to 7.1 million. The main reason for this is its recent inclusion of all Shopify (NYSE: SHOP) merchants who qualify for its service.

The main bear case for this company when it first went public was the over-reliance on Peloton as its main merchant, but with the addition of Shopify, Amazon (NASDAQ: AMZN), and more recently Walmart, the company is diversifying its clientele and pushing into a global market with plenty of opportunities for growth. 

Affirm has incredible potential to disrupt the credit card industry. Its service would do away with the costly credit card servicing fees that many merchants have to pay. On the other hand, it gives more buying power for many lower-income families who would not normally gain approval for a credit card. Its new partnerships with Walmart, Amazon, and Shopify are indicators of the disruptive element that Affirm has in the credit card industry.

The Bear case for Affirm

With great potential, comes great responsibility, and as a company that only went public back in January, it still has a way to go. Whilst investors were quite pleased with the recent earnings report, there were still some areas of concern. 

Affirm posted a loss per share of $0.48, which did not meet expectations of -$0.29 per share. Whilst a loss per share can be expected in a time of growth, the gap between estimates and results can highlight a lack of efficiency in its spending, leading to problems later down the line. Investors would do well to keep an eye on this metric. 

Furthermore, the BNPL trend is expanding across the globe and the likes of PayPal (NASDAQ: PYPL), Square (NYSE: SQ), and other payment solutions companies have been quick on the uptake. PayPal just recently bought ‘Paidy Inc.’, a Japanese startup that specializes in BNPL. Square also recently signed an agreement to acquire Australian pay later solutions company ‘Afterpay Ltd’. Furthermore, Apple (NASDAQ: AAPL) is currently developing a product called ‘Apple Pay Later’, this last one, in particular, sent shares of Affirm plummeting. 

These three developments show an increased rise in the number of players in the ‘buy now pay later’ space. And, I don’t know about you but, if I was a newly public company and I had to compete with the likes of Square, PayPal, and Apple, I would be very worried. 

So, is Affirm a good investment? 

Affirm seems to be a good investment overall. It has the potential to go far as an industry disruptor. However, investors should be wary that there are already several big-name players who have entered this space.

Affirm presents a moderately risky investment, there isn’t much to be overly worried about just yet, but things can change fast in the fintech industry. 

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Quickfire round

  • Where is Affirm Holdings based? 

Affirm Holdings’ headquarters are based in San Francisco, California. 

  • Who is the CEO of Affirm?

The CEO of Affirm is Maksymilian Rafailovych Levchin, AKA, Max Levchin. He is a Ukrainian-American software engineer who co-founded PayPal. 

  • How much did Affirm raise in its IPO?

In its IPO on January 13, 2021, Affirm Holdings managed to raise $1.2 billion

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