Shares of Affirm Holdings Inc. were surging more than 9% in Friday’s session after an analyst cheered the company’s positioning despite recent pressure on the name and the broader buy-now pay-later category.
While Affirm faces fresh competition in the BNPL industry from Apple Inc.
which announced plans to let Apple Pay users split purchases into interest-free installments at a keynote presentation earlier this month, D.A. Davidson’s Chris Brendler wrote that he’s “increasingly convinced Affirm
is the long-term winner in this space.”
Affirm shares have fallen 28% over the past month, as the S&P 500
has dropped about 8%. Brendler said that he’s “not surprised in the recent underperformance as the market appears to be increasingly pricing in a recession as well as the rising potential for further stress in the capital markets,” plus there’s risk stemming from Apple’s entry into the world of BNPL.
But Brendler also thinks that macroeconomic pressure can “reduce competition” in the market, while Affirm has advantages in underwriting and funding for which he argues investors aren’t giving it enough credit.
“While it’s tough to predict where the economy is heading, we firmly believe AFRM’s remarkable growth trajectory will continue,” he added.
Brendler highlighted that BNPL competitor Klarna, which is based in Sweden, reportedly is planning to raise money at a substantially lower valuation than it did last year, according to The Wall Street Journal. (A Klarna spokesperson told MarketWatch that the story “is pure speculation and we do not comment on fundraising or valuation speculation.”)
“Klarna may have missed the window to [go] public and its growth could slow as a result,” Brendler wrote.
As for Apple, Brendler offered that the consumer-electronics giant’s interest in BNPL is a “big endorsement” for the payment type. Apple’s entry could help spur further growth in BNPL, in his view, though he noted that the two companies will be offering different types of installment products: Apple is planning to allow for short-term, interest-free loans, while Affirm “specializes in longer duration, consumer-funded installment loans.” Affirm loans can bear interest.
“With nearly all competition focused the short end, AFRM dominates the consumer-funded space and its Split Pay product is currently only offered through Shopify so it won’t directly compete with Apple Pay at least initially,” he wrote. “Although competition will likely keep expanding,” including from PayPal Holdings Inc.
“the sudden change in risk appetite and continued lack of regulatory clarity will likely slow the influx of new entrants.”
Further, since Apple plans to handle its own collecting and underwriting, Brendler thinks the company will “tread cautiously” and doubts that Apple will conduct “rapid product expansion beyond short-term BNPL.”