Affirm Stock Is a Strong Investment in E-Commerce Payments Disruption

By now many of you are likely familiar with fintech company PayPal (NASDAQ:PYPL), which is a major beneficiary of the e-commerce trend. However, what if I told you that there is a new player in the scene that could be a disruptive force in e-commerce payments? And this new player was established by one of Paypal’s founders, Max Levchin. I’m talking about Affirm (NASDAQ:AFRM). Affirm stock is a promising way to take advantage of the continued secular trend of e-commerce growth.

Affirm (AFRM) logo displayed on a smartphone

Source: Piotr Swat /

Let’s dive a bit deeper into what makes AFRM stand out in the world of fintech and e-commerce.

A Closer Look at Affirm Stock

Affirm stock IPO’d at a price of $49 on January 13, 2021, and skyrocketed 98% that same trading day. After a fair bit of sideways consolidation, the stock is currently trading at $136 and seems poised for its next big move. Despite the meteoric rise, I believe this is still a solid entry point for long-term investors.

And I’m not the only one who is enthusiastic about the company’s prospects. In fact, Morgan Stanley and Barclay’s recently initiated Overweight ratings on the stock.

So what exactly does the company do to warrant such a bullish prognosis? Affirm is a rapidly growing, mobile-first e-commerce payment platform. The company helps consumers make large purchases from online retailers by allowing them to pay over a period of time rather than entirely upfront. In other words, the company facilitates a “buy now, pay later” solution that’s specifically tailored for e-commerce.

Affirm’s technology is seamlessly integrated into online retailer’s websites making shopping a pleasant consumer experience. The company currently has partnerships with more than 6,500 merchants in a variety of industries.

In fact, I’m sure a significant number of your favorite brands are already Affirm partners. After all, Affirm recently partnered with Shopify (NYSE:SHOP) to power its Shop Pay Installments. This could be a game-changer as Shopify is an incredibly popular e-commerce platform for businesses. Affirm is also integrated with Walmart’s (NYSE:WMT) e-commerce site, ensuring a vast array of shopping options.

Affirm uses more than a billion points of data and risk management algorithms to access risk profiles. According to the company, this has led to lower fraud rates and higher approval rates compared to traditional credit card companies. The average Affirm customer is a millennial with an average income of $90,000. In the latest quarter, Affirm’s revenues have increased by more than 93% year over year, showing that the company is still on a rapid growth trajectory.

Unlike credit card companies and other lenders, Affirm offers true 0% APR payment options and simple interest loans. In other words, if your credit rating is good enough, you might be able to make your purchases entirely interest rate free. The company also facilitates some interest rate bearing loans, but — unlike compounding credit card debt — the interest on these loans is calculated upfront and is therefore less predatory.

Affirm has a mission to “[d]eliver honest financial products that improve lives.” The company makes most of its money through fees it charges to its merchant partners rather than from borrowers. The company does not charge late payments and hopes to build its reputation and trust in its brand this way.

This is especially important considering that according to a Harris Poll in 2020, 81% of millennials would prefer to use financial products through a technology company’s platform instead of a traditional financial services provider. By leaning hard on this mission, the company has the potential to disrupt the close to $100 billion credit card industry. The comapny ticks all the boxes that would be attractive to the millennial and gen-z consumer base, and that’s a large part of what makes the long-term case for Affirm stock so promising.

Investor Takeaway

Although it’s a little expensive at 25x 2022 revenues, I believe that Affirm’s stock still has plenty of upside from here. The company is trading at a market capitalization of $30 billion compared to PayPal’s $330 billion. Also consider that e-commerce still has room to grow at a 21.3% penetration and “buy now, pay later” only makes up 1.6% of e-commerce sales.

With all of these elements in mind, it’s not far-fetched to believe that rapidly growing Affirm could potentially be a 4x stock in the next five years.

On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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