Affirm (AFRM) Stock Down on Mastercard's Entry in BNPL Space
Affirm's (AFRM) shares decrease after Mastercard announces the launch of its buy now pay later service.
Affirm Holdings Inc.’s AFRM stock was down 10.79% on the last trading day. The massive decline in its shares was triggered by the news that Mastercard Inc. MA unveiled its own BNPL service with the launch of Mastercard Instalment, thus heating up competition in the space, which has low barriers to entry.
Another company Square, which recently announced a $29-billion acquisition of the Australian firm Afterpay, to get into the BNPL space, also dropped close to 6%.
Mastercard Installments will be first available to the markets across the United States, Australia, and the United Kingdom (UK). This service will enable consumers to digitally access BNPL offers, either pre-approved through their lender’s mobile banking app or via an instant approval during checkout.
BNPL is a kind of financing option, which allows customers to make payments for their purchases in instalments according to the terms of the offer. This arrangement works in favor of both merchants and shoppers. While the buyers can afford expensive purchases by splitting their payments, merchants gain from high sales.
BNPL services have been a huge craze among the buyers so far, especially amid the COVID-19 crisis, which caused financial woes. Moreover, users prefer BNPL to credit cards as they evade exorbitant costs. Also, this platform is lapped up by those who do not qualify for the credit cards.
The BNPL is a booming space and even though the installment payments facility has been in existence for a long time, it was earlier structured in a traditional way, carrying an interest, late payment and other additional charges. The BNPL trend gained momentum owing to trust issues in legacy financial institutions. The new-age customers, mainly Gen Z and the 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 aptly here.
The BNPL market is expanding fast. Per 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.
Thus, this vast market opportunity is luring players and intensifying their rivalry. The payments company PayPal Holdings, Inc. PYPL is also tapping the sector. The major company in the BNPL space is the Swedish startup named Klarna, which holds the number one spot followed by AfterPay and Affirm.
Investors’ pessimism should not be much of a concern forAffirm as it is poised well for growth in the said industry. The company boasts customers like Walmart Inc. WMT, Shopify, Amazon.com, Peloton and others who use its instalment plan service to offer the same to their customers.
In May, Affirm completed the acquisition of Returnly, a leader in online-return experiences and post-purchase payments. On the merchant side, this buyout meaningfully expanded the company’s addressable market.
Affirm also extended its presence in North America by closing the acquisition of the leading pay later brand PayBright in Canada, earlier in January.
This fintech company is in preliminary stages and is incurring losses, which may continue for some more years as the company expands to get a decent market share. Investors will keep a close watch on its top-line growth.
In its most recent quarter, active merchants grew 412% to nearly 29,000 while active consumers soared 97% to 7.1 million, year over year. Transactions per active consumer increased 8% to 2.3 as of Jun 30, 2021. Another key metric, which is the gross merchandise value (GMV) also surged 79% to $8.3 billion. Growth in these metrics reflects its strong business and stickiness of its products.
Affirm also provided a solid guidance for 2022, which expects GMV in the range of $12.45-$12.75 billion, revenues between $1.16 billion and $1.19 billion and the adjusted operating loss between $145 million and $135 million. The revenue outlook implies growth of 33-36% from the year-ago reported figure. GMV view suggests an increase between 50% and 54% from the prior-year reported number.
Affirm currently carries a Zacks Rank #3 (Hold). It should give good returns over the long term as it will expand its market share and turn profitable. Since its IPO in January the stock has gained 17.8% compared with its industry's growth of 188%.
Image Source: Zacks Investment Research
Zacks' Top Picks to Cash in on Artificial Intelligence
In 2021, this world-changing technology is projected to generate $327.5 billion in revenue. Now Shark Tank star and billionaire investor Mark Cuban says AI will create "the world's first trillionaires." Zacks' urgent special report reveals 3 AI picks investors need to know about today.See 3 Artificial Intelligence Stocks With Extreme Upside Potential>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Mastercard Incorporated (MA): Free Stock Analysis Report
Walmart Inc. (WMT): Free Stock Analysis Report
PayPal Holdings, Inc. (PYPL): Free Stock Analysis Report
Affirm Holdings, Inc. (AFRM): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research