Affirm is a leading player in the fast-growing "buy now, pay later" (BNPL) space, which provides consumers with an alternative to traditional credit options, such as credit cards. By offering flexible, transparent loan options that can be paid over time, Affirm aims to make it easier for consumers to make purchases and manage their finances. The company's strong reputation and partnerships have helped to drive significant growth and increase its market share.
Investment Overview
Riding on BNPL adoption growth. The popularity of Buy Now, Pay Later (BNPL) is surging, as it offers easy-to-access loans to borrowers without requiring them to share all their credit records with major credit bureaus. Additionally, it helps retailers boost their ticket sizes. According to FIS Global Payments, global e-commerce transaction value is expected to grow at a 9% CAGR, and the BNPL service adoption rate is projected to rise from 5% to 6% by 2026. This indicates that BNPL services will grow at a 14% CAGR by 2026. We believe that Affirm, as a leading BNPL player, will benefit from this promising BNPL adoption growth.
Partnerships and Affirm Card to drive faster-than-peers GMV growth. Thanks to its partnerships with high-profile merchants such as Amazon and Walmart, as well as merchant acquirers like Stripe and Adyen, Affirm has substantially broadened its distribution, reaching more customers and improving transaction frequency. The Affirm Card further complements this coverage, enabling consumers to use credit outside of Affirm's integrated merchants. This service has seen rapid growth since its launch and has penetrated 7% of its total customer base so far. We expect Affirm's Gross Merchandise Volume (GMV) to grow at a CAGR of over 20% during FY24-27.
Potential credit outlook improvement and easing regulatory scrutiny. We view the easing concerns regarding the U.S. labor market as a positive sign for Affirm's portfolio credit quality, which could improve the revenue less transaction cost (RLTC) outlook. The business-friendly stance of the Trump administration may also reduce regulatory scrutiny on BNPL firms like Affirm, providing the sector with more room to grow. Additionally, the expected IPO of Klarna could boost sentiment toward the BNPL sector.
Maintain BUY with TP of USD86. We expect Affirm to benefit from improving customer credit profile and promising GMV growth fueled by new partnerships, AFRM Card, and expansion of product offerings. We rolled our valuation to a slightly lower multiple, 7.0x FY26F EV/Sales (from 7.5x FY25F), higher than that of its fintech peers, to justify its stronger topline growth in the mid-term.
Key risks:
Downside risks include deterioration of customer credit profile, stricter regulatory supervision and loss of major enterprise merchant partners.
Upside risks include consumer credit quality improving faster than expected, consumer demand for unsecured loans improves despite a challenging environment, and less pricing pressure.
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