Affirm Stock May Have a Bright Future, But It Is Already Priced In

Facing potentially huge competition and generating gigantic losses, Affirm (NASDAQ:AFRM) stock has a poor outlook at this point.

Affirm (AFRM) logo displayed on a smartphone
Source: Piotr Swat /

Affirm has developed a Buy Now Pay Later (BNPL) offering. BNPL allows consumers to buy items now and pay for them in fixed installments. Sometimes Affirm’s BNPL factors in interest payments, while other times, the BNPL purchases are interest-free.

When I first heard about BNPL, I thought that it should be very easy for any sizeable fintech or credit card company to launch the service.

In my view, BNPL basically sounds similar to a credit card purchase. Indeed, like credit cards, BNPL involves buying a good or service in the present and paying for it in the future.

All credit card companies and most fintech companies have a great deal of experience dealing with credit cards, so it should not be very difficult for them to implement BNPL.

And indeed, PayPal (NASDAQ:PYPL) CEO Dan Schulman recently noted that his company had managed to build a BNPL offering on its own i.e. without making any acquisitions.

What’s more, its BNPL offering appears to be doing quite well, as the CEO reported that the total payment volume of its offering had jumped 50% in the second quarter, versus the previous quarter.

Meanwhile, according to nerdwallet,Credit cards have been letting consumers “buy now and pay later” for decades.”

BNPL and AFRM Stock

I’m not sure about that, but I know that, for several months, I  have been able to use BNPL with my Chase credit cards, owned by JPMorgan (NYSE:JPM), and my American Express (NYSE:AXP) credit cards have been advertising the service.

Meanwhile, research firm McKinsey recently reported that multiple “banks and {other} traditional players” in the payment space are implementing BNPL.

The firm indicated that it believes that, if these companies approach BNPL correctly, they can meaningfully benefit from it. Further, McKinsey mentioned two other major companies largely devoted to BNPL–Klama and Afterpay (OTC:AFTPY).

Another InvestorPlace columnist, Mark Hake, in September wrote that “Buying AFRM stock now is likely to make you pay later since the company is cascading its losses with higher revenue and loans.”

He noted that, in the company’s quarter that had ended in June, its operating losses had soared by a scary 252% year-over-year, reaching $379.1 million.

Hake added that, since Affirm does not report its net interest margin, it’s probably paying higher interest rates for the money it borrows than the funds it lends. That, of course, does not bode well for AFRM stock.

Also negative for Affirm is the company’s relatively high reliance on Peleton (NASDAQ:PTON).

According to Front Office Sports, “Peloton, Affirm’s biggest client, generated around 20% of the lender’s $870.5 million in revenue (emphasis Front Office Sports) for the fiscal year ending June 30.”

As the pandemic weakens, Peleton (as I had previously predicted) is not doing very well at all.

On Nov. 4, the company drastically slashed its full-year revenue guidance. And for its fiscal first quarter, the exercise-bike maker reported earnings per share of -$1.25. Peleton’s struggles create big risks for Affirm and for AFRM stock.

Affirm Upside Is Are Priced In

On a positive note, in August, Affirm launched a partnership with Amazon (NASDAQ:AMZN).

With the alliance, Affirm’s BNPL service can be accessed by Amazon’s customers via its checkout screen. Of course, given Amazon’s tremendous revenue and gigantic customer base, the partnership will wind up bringing Affirm thousands of new customers.

Additionally, McKinsey estimates that the originations of BNPL will jump to roughly $80 billion in 2023, up from roughly $15 billion last year.

BNPL players are getting significant commission revenue from merchants in return for marketing their products. Advertising is also becoming a meaningful revenue source for the BNPL companies, McKinsey indicated.

But with AFRM stock trading at a huge trailing price-sales ratio of 30, all of these strengths are way more than priced into the shares.

The Bottom Line on AFRM Stock

Affirm’s tough competition, large losses and very high valuation make its shares unattractive. As a result, I advise investors to sell the stock at this point.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015.  Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.

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