Amid rising questions in this tricky environment for the consumer economy, financial technology (fintech) specialist Affirm (NASDAQ:AFRM) received a much-needed boost from Amazon (NASDAQ:AMZN). Recently, the tech giant disclosed the debut of its first buy now, pay later (BNPL) option geared for millions of small business owners who use the company’s online store. Subsequently, an expanded partnership with Affirm bolstered sentiment for AFRM stock.
According to a CNBC report, Amazon confirmed that its partnership with Affirm will extend to include Amazon Business, the e-commerce platform focusing on serving enterprises. Specifically, the service — which features loans ranging from $100 to $20,000 — will be available to all eligible customers by Black Friday (Nov. 24). It’s tailored for sole proprietors, the most common business structure in the U.S.
As a provider of BNPL services, the news instantly reinvigorated sentiment for AFRM stock. While shares had performed strongly on a year-to-date basis, the market value declined significantly since Sept. 18. Naturally, worries associated with high inflation and also spiked borrowing costs imposed a dark cloud over fintech players.
Last week, French payment and transactional services firm Worldline (OTCMKTS:WRDLY) sounded a sharp warning about reduced expenditures for discretionary items and services. At the time, several fintech entities suffered heavy losses.
AFRM Stock Gets a Much-Needed Lifeline
Although AFRM stock appeared to perform on the surface based on its YTD performance, the underlying enterprise needed a win. On the aforementioned Sept. 18 date when AFRM hit a closing peak this year, news broke that a Peloton (NASDAQ:PTON) insider sold 10,000 shares of PTON.
A top brand during the Covid-19 pandemic shutdown, Peloton’s popular exercise bikes kept people fit and motivated. Unfortunately, as the cynical tailwind faded and restrictions fell by the wayside, PTON lost relevance. Subsequently, the loss of demand traveled downstream, impacting Affirm’s revenue growth.
To adjust for the top-line erosion, the BNPL specialist began shifting its focus toward small proprietors. Per the above CNBC report, 28 million registered small proprietors operate in the U.S., thus representing a massive addressable market. Subsequently, AFRM stock jumped as the service may be a win-win proposition.
As Affirm Chief Revenue Officer Wayne Pommen remarked, “[t]he financial industry is not great at providing credit to really small businesses.” With the expanded BNPL deal, the platform should help businesses grow and manage their cash flows.
Also, small businesses appreciate the BNPL option because of its transparency. Users know up front how much interest they will owe, helping to mitigate challenges stemming from the pandemic.
Why It Matters
Although the development is positive, analysts remain skeptical about AFRM stock, pegging it a consensus hold. This assessment breaks down as three buys, eight holds and four sells. Also, the average price target sits at $17.10, implying about 17% downside risk.
On the date of publication, Josh Enomoto 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 InvestorPlace.com Publishing Guidelines.
