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Affirm's (AFRM) Shares Go Through the Roof Post Amazon Deal
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Shares of Affirm Holdings, Inc. (AFRM - Free Report) skyrocketed after the announcement of its tie-up with the e-commerce leader Amazon.com, Inc. (AMZN - Free Report) whereby the former will provide its instalment payments services to the latter on a piurchases valued $50 or more.
The news cheered investors and added credence to this buy now pay later company’s business model. The partnership with the e-commerce giant will in fact firm up Affirm’s position in the burgeoning and highly competitive BNPL space. Shares of the company soared 46.7% in the last trading day, marking it the single day biggest gain after it debuted trading on the exchanges in January following its IPO.
Per the deal, select Amazon customers will now have the option to pay for their purchases in parts by availing Affirm’s services. A broader roll out of the service will be done gradually.
The deal received a thumbs-up from investors as well as analysts across the board. Per Deutsche Bank analyst Bryan Keane, Affirm will see a material tailwind to its financials from this Amazon agreement. He estimates 2022 annual total payment volume (TPV) contribution of $7.7 billion with a potential revenue contribution of $385 million (potentially nearly 22% of Affirm) and an incremental contribution profit of $74 million (potentially nearly 12% of Affirm).
The BNPL is an exploding space and even though the installment payments facility has been in existence since long ago, it was earlier structured in a traditional way, carrying an interest, late payment and other additional charges. The BNPL trend got accelerated owing to trust issues in legacy financial institutions. The new-age customers, mainly Gen Z and millennials, look for payment options that are easy, transparent, interest-free and dispersed via a digital medium and mobile phones. And the BNPL fits the bill perfectly here.
The BNPL market is expanding fast . According to Worldpay’s 2020 Global Payments report, “buy now pay later” is the fastest growing e-commerce payment method globally. In North America, the BNPL market share is expected to triple to 3% of the e-commerce payments market by 2023. In other regions, such as EMEA, “buy now pay later” already accounts for almost 6% of the e-commerce payment market and is expected to grow to almost 10% by 2023.
This vast market opportunity is attracting players and heating up competition. The same is underscored by the recent deals announced. The payments company PayPal Holdings, Inc. (PYPL - Free Report) is also dipping its toe in the sector. Another company, Square, Inc. (SQ - Free Report) , recently announced a $29-billion acquisition of the Australian firm Afterpay, a rival of Affirm. The other major company in the BNPL space is the Swedish startup named Klarna.
The deal with Amazon is aptly timed as Affirm wanted a strong foothold amid its rivals, which are expanding their market share, as well as a few other companies that are also participating in the installment payment program. For instance last year American Express Co. (AXP) introduced BNPL optionfor its card holders, named Pay It Plan It.
The aforementioned news also weighed on the shares of traditional card companies with the likes of Discover Financial Services (DFS) and Synchrony Financial (SYF) falling 4.67% and 5%, respectively, in the last trading day. These credit and debit card companies might see a growing competition from the adoption of the BNPL trend by the young tech-savvy shoppers who find this payment method a handy interest-free alternative to credit cards and can thus avoid incurring credit card debt.
According to the Federal Reserve, as of June 2020, Americans owed nearly $1 trillion of credit card debt, reflecting the massive load of consumer debt and the urgent need of a flexible payment option.
Affirm currently carries a Zacks Rank #3 (Hold) and is an emerging company, which has the potential to generate strong returns for its investors over the long haul.
Ever since it started trading, the stock has gained 2.4% compared with its industry's growth of 83.2%. After surging to double its price following its IPO, the stock came under pressure when the news came out that Apple is entering the market. The announcement of Square's acquisition of Afterpay also dragged down the stock.
Image Source: Zacks Investment Research
The evolving e-commerce market, a solid omni-channel presence, efforts to introduce financial products, expand its merchant reach and entry into new markets will be some of the company’s key catalysts.
Image: Bigstock
Affirm's (AFRM) Shares Go Through the Roof Post Amazon Deal
Shares of Affirm Holdings, Inc. (AFRM - Free Report) skyrocketed after the announcement of its tie-up with the e-commerce leader Amazon.com, Inc. (AMZN - Free Report) whereby the former will provide its instalment payments services to the latter on a piurchases valued $50 or more.
The news cheered investors and added credence to this buy now pay later company’s business model. The partnership with the e-commerce giant will in fact firm up Affirm’s position in the burgeoning and highly competitive BNPL space. Shares of the company soared 46.7% in the last trading day, marking it the single day biggest gain after it debuted trading on the exchanges in January following its IPO.
Per the deal, select Amazon customers will now have the option to pay for their purchases in parts by availing Affirm’s services. A broader roll out of the service will be done gradually.
The deal received a thumbs-up from investors as well as analysts across the board. Per Deutsche Bank analyst Bryan Keane, Affirm will see a material tailwind to its financials from this Amazon agreement. He estimates 2022 annual total payment volume (TPV) contribution of $7.7 billion with a potential revenue contribution of $385 million (potentially nearly 22% of Affirm) and an incremental contribution profit of $74 million (potentially nearly 12% of Affirm).
The BNPL is an exploding space and even though the installment payments facility has been in existence since long ago, it was earlier structured in a traditional way, carrying an interest, late payment and other additional charges. The BNPL trend got accelerated owing to trust issues in legacy financial institutions. The new-age customers, mainly Gen Z and millennials, look for payment options that are easy, transparent, interest-free and dispersed via a digital medium and mobile phones. And the BNPL fits the bill perfectly here.
The BNPL market is expanding fast . According to Worldpay’s 2020 Global Payments report, “buy now pay later” is the fastest growing e-commerce payment method globally. In North America, the BNPL market share is expected to triple to 3% of the e-commerce payments market by 2023. In other regions, such as EMEA, “buy now pay later” already accounts for almost 6% of the e-commerce payment market and is expected to grow to almost 10% by 2023.
This vast market opportunity is attracting players and heating up competition. The same is underscored by the recent deals announced. The payments company PayPal Holdings, Inc. (PYPL - Free Report) is also dipping its toe in the sector. Another company, Square, Inc. (SQ - Free Report) , recently announced a $29-billion acquisition of the Australian firm Afterpay, a rival of Affirm. The other major company in the BNPL space is the Swedish startup named Klarna.
The deal with Amazon is aptly timed as Affirm wanted a strong foothold amid its rivals, which are expanding their market share, as well as a few other companies that are also participating in the installment payment program. For instance last year American Express Co. (AXP) introduced BNPL optionfor its card holders, named Pay It Plan It.
The aforementioned news also weighed on the shares of traditional card companies with the likes of Discover Financial Services (DFS) and Synchrony Financial (SYF) falling 4.67% and 5%, respectively, in the last trading day. These credit and debit card companies might see a growing competition from the adoption of the BNPL trend by the young tech-savvy shoppers who find this payment method a handy interest-free alternative to credit cards and can thus avoid incurring credit card debt.
According to the Federal Reserve, as of June 2020, Americans owed nearly $1 trillion of credit card debt, reflecting the massive load of consumer debt and the urgent need of a flexible payment option.
Affirm currently carries a Zacks Rank #3 (Hold) and is an emerging company, which has the potential to generate strong returns for its investors over the long haul.
Ever since it started trading, the stock has gained 2.4% compared with its industry's growth of 83.2%. After surging to double its price following its IPO, the stock came under pressure when the news came out that Apple is entering the market. The announcement of Square's acquisition of Afterpay also dragged down the stock.
Image Source: Zacks Investment Research
The evolving e-commerce market, a solid omni-channel presence, efforts to introduce financial products, expand its merchant reach and entry into new markets will be some of the company’s key catalysts.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.