Title: Is Affirm Holdings a Millionaire-Maker Investment?
U.S. shoppers have just wrapped up Black Friday and Cyber Monday, two of the year's most significant shopping events. According to data from Adobe, consumers utilized Buy Now, Pay Later (BNPL) payment methods to finance close to a billion dollars worth of purchases on Cyber Monday alone. The BNPL method is gaining traction, with estimates showing it accounted for 7.7% of total spending during these two days - a significant increase from its 6.8% share in 2022 and 7.5% in 2021.
FRESH PERSPECTIVE: Affirm's Growth Trajectory
Affirm (AFRM -4.28%) has emerged as a strong contender in the BNPL growth trend. The financial technology (fintech) company has collaborated with prominent consumer-focused companies, such as Amazon and Apple, to bolster its user base as consumers increasingly opt for deferred payment options.
Could Affirm be the next big player in the fintech sector? I've delved into the company's business to determine its potential as a millionaire-making stock.
TALKING POINT: Tremendous Expansion Opportunities
Consumer debt forms a massive pillar of the U.S. economy, with household credit card debt reaching a staggering $1.16 trillion, an all-time high. Affirm views this as a prime opportunity to disrupt the credit card industry. The company, which prides itself on its transparency, offers installment loans for each transaction without charging late fees to borrowers.
Grand View Research, a consulting firm, estimates the BNPL market will grow by 24% annually through 2030. Affirm has outlined its expansion strategies in three key areas: users, merchants, and engagement (transactions per user).
In Q1 of Affirm's fiscal year 2025, the company demonstrated substantial growth in all three categories. Crucially, Affirm's gross merchandise volume has been growing faster than the BNPL market, an indication that it's executing effectively in a competitive environment.
Avoiding Competition Overcrowding
Affirm's unique value proposition differentiates it from competitors like Klarna and Afterpay (Block). With hundreds of millions of adult consumers worldwide (Affirm recently expanded to the U.K.), and e-commerce still accounting for a fraction of total retail spending, there's ample room for multiple successful players in this market.
CEO'S COMPETITIVE EDGE
Investing in young companies requires faith in their leadership. This is often an overlooked aspect when considering Affirm. Max Levchin, the company's founder and CEO, carries deep fintech experience, having co-founded PayPal, one of the leading fintech innovators from the early 2000s.
Affirm's strong leadership is evident in its effective underwriting and product innovation. The company has maintained low default rates on its loans without charging late fees. Apple attempted to launch a BNPL service but discontinued it and partnered with Affirm instead.
Affirm's innovative product - the Affirm Card - has shown promising results within a year of its launch, boasting 1.5 million users. This dual-purpose payment card allows users to split transactions between debit and BNPL installment loans as they choose.
VERDICT
Affirm is a well-established company, with a $22 billion market cap, and is yet to achieve profitability. Despite this, its financials show improvement, with management projecting profitability as it grows.
Is Affirm capable of turning a modest investment into millions? PayPal, a comparable success story, is valued under $100 billion today. While the journey to millionaire-making status might be lengthy, Affirm has the potential for impressive growth over the coming years.
Its diverse portfolio-worthy status stems from the significant growth opportunities in the payments and retail industries. Affirm's innovative products and strategic partnerships give it a competitive edge in the BNPL market. However, market growth and profitability are dependent on navigating regulatory challenges and competition from both fintech startups and established financial institutions.
Investing in Affirm could potentially provide significant returns, considering its growth opportunities in the BNPL market, which is projected to expand by 24% annually until 2030. Max Levchin, the company's founder and CEO, brings a wealth of fintech experience, having co-founded PayPal.
Affirm's strategy to grow its user base, increase merchant partnerships, and boost user engagement has shown promising results, with its gross merchandise volume growing faster than the overall BNPL market. By offering installment loans and eschewing late fees, the company has differentiated itself in the competitive credit card industry.
