Now that the market has decided that the Federal Reserve will likely slash interest rates in 2024, enterprising investors are in the mood to add some interesting fintech picks to their shopping lists. After all, if interest-rate reductions spur borrowing and lending activity, this could pave a path to profits for forward-looking financial firms.
Among the more intriguing fintech names is Affirm Holdings (NASDAQ:AFRM), a point-of-sale payment-platform provider that specializes in buy-now-pay-later (BNPL) arrangements. Speculative investors might hope that buying AFRM stock now will pay them later, although it appears that the market may have already priced in the assumed future growth of the BNPL trend and Affirm Holdings.
The emergence of BNPL in 2023
If inflation was a problem for consumers in 2023, you wouldn’t know it from the holiday-season data. Despite higher prices across a variety of product categories, Americans shopped ’til they dropped on Black Friday and Cyber Monday.
However, even though people shopped, it doesn’t necessarily mean they paid in full. Indeed, the BNPL trend was in full effect this holiday season. Adobe (NASDAQ:ADBE) Analytics reported that U.S. consumers spent a whopping $64.9 billion using BNPL platforms between Jan. 1 and Dec. 6. This represents a 15% year-over-year increase.
Furthermore, Adobe Analytics reported a 43% year-over-year increase in BNPL purchases on Cyber Monday. Clearly, American shoppers aren’t ashamed to buy now and worry about paying for the items down the road.
Why would shoppers turn to BNPL payment arrangements now? Maybe there’s social pressure to buy holiday gifts, but people can’t afford to pay for them. This raises the question of whether BNPL users will end up defaulting on their loans in 2024.
For now at least, the market doesn’t seem particularly concerned about whether the pay-later part of the BNPL formula will hold up. AFRM stock has doubled since Thanksgiving, indicating investors’ willingness to wager on America’s latest layaway craze.
Affirming Affirm’s advantages
As American shoppers opt not to delay gratification in late 2023, investors might seek to capitalize on the BNPL trend that one commentator deemed “lending on steroids.” If so, then AFRM stock offers pure-play exposure to the emergence of modern, technology-enhanced installment-payment plans.
In other words, if you’re going to bet your hard-earned capital on a BNPL business, Affirm Holdings is an obvious pick. As Jefferies analyst John Hecht phrased it, Affirm is the “prime benefactor” as the BNPL trend gains market share among payment methodologies.
Hecht upped his price target on AFRM stock from $9.50 to $30 in late November, but that’s old news now that the share price has surpassed $50. Momentum-focused traders will surely be delighted by the share-price momentum, although contrarians may bristle at the thought of buying after a parabolic move.
Still, even staunch contrarians can’t argue with Affirm Holdings’ advantages in the wake of several strategic partnerships. First, the company announced a collaboration with digital gift-card distributor Blackhawk Network, which enables shoppers to purchase gift cards through Affirm. Naturally, the company will offer “flexible” (i.e., delayed) ways to pay for those gift cards.
Next, Affirm Holdings disclosed a tie-in with online eyewear retailer Zenni Optical, in which Affirm will offer payment options to Zenni’s customers.
“On average, consumers paying with Affirm on Black Friday spent nearly $260 per checkout on eyewear, an increase of more than 30% year over year,” stated Pat Suh, Affirm’s senior vice president of revenue.
Last but certainly not least, the company delighted investors when it revealed that the almighty Walmart (NYSE:WMT) will bring its “pay-over-time options to self-checkout kiosks at over 4,500 Walmart stores in the United States.”
Again, Suh had a relevant statistic at the ready, stating, “Recent Affirm research revealed that more than half of Americans (54%) are looking for retailers to offer a buy-now-pay-later option at checkout.”
AFRM stock: Too high to buy?
If Suh’s stat is correct, then the Walmart-Affirm collaboration should be a win-win for the two companies. On the other hand, the market immediately priced in all best-case scenarios as AFRM stock jumped 16% on the Walmart partnership news.
That share-price leap extends an already extended rally for the stock. As a result, investors are now left to predict whether Affirm Holdings’ advantageous partnerships will translate to better-than-already-anticipated growth for Affirm.
Like everything else in 2024, that remains to be seen. For the time being, investors can decide whether they really believe in the buy-now-pay-later practice — while considering whether they’re willing to test out a strategy of buying AFRM stock high and hoping it goes even higher.
Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.
