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The company’s stock had soared 430% in 2023 as of Wednesday’s close, outpacing every other U.S. tech company with a market capitalization of $5 billion or more. The next best performing company was his Coinbase, which skyrocketed by 423%, mainly due to the Bitcoin rally.
Concerns about the company’s doomsday scenario are waning as the Federal Reserve prepares to cut interest rates next year and more retailers sign up for Affirm’s buy now, pay later service (BNPL). Ta. Affirm stock rose significantly in November after the company signed an expanded partnership with Amazon, and BNPL purchases hit a record high on Cyber Monday.
Tom Hayes, chairman of Great Hill Capital, said: “While we expected consumers to be overjoyed, unemployment to rise and interest rates to rise to destroy everything, we’ve seen the exact opposite happen on every front.” ” he said. I have no position in stocks. “That’s why there are scenarios where Affirm can start performing.”
Founded in 2012 by PayPal co-founder Max Levchin, Affirm competes with companies such as Klarna, Block’s Afterpay and Zip in the fast-growing BNPL market. Shoppers who choose to pay with BNPL services typically pay their purchases in four or more installments over a period of three months to one year, often with no compounding interest. Lenders make money by paying interest and charging merchants fees for providing lending services.
Retailers can offer consumers another option to purchase skateboards, watches, and gifts for family members, and benefit from less sticker impact and resulting in less cart abandonment .
Affirm made its public market debut on Nasdaq in January 2021 as adoption of BNPL services surged due to the Covid-19 pandemic. Shoppers enriched with stimulus checks took out microloans to buy clothing, electronics and Peloton stationary bikes, which at one point accounted for 30% of Affirm’s revenue. Online stores are rushing to add his BNPL as an option at checkout.
However, by early 2022, Affirm’s stock price had fallen more than 60% from its 2021 peak. The rest of the year was similarly dismal, with rising interest rates making borrowing costs higher for Affirm to finance its installment loans. Affirm cut 19% of its workforce in February 2023, but executives said macro headwinds and “negative consumer sentiment” are likely to persist for the remainder of the fiscal year.
As it turns out, they were overly bearish.
Affirm’s stock price began rising in August after the company announced its fourth quarter results. The company has won new merchant deals in areas beyond retail, including travel, wireless communications, ticketing, and healthcare. The stock more than doubled in the fourth quarter, boosted by Affirm’s announcement last week that it would offer BNPL loans at Walmart self-checkouts.
Despite the dramatic recovery, Affirm stock is still about 70% below its November 2021 high.
Looking ahead to 2024, BNPL lenders will face slower inflation and an optimistic interest rate environment.
Dan Dolev, managing director at Mizuho Securities, said Affirm is in a strong position to retain users. He pointed to new retailer deals and an expanded market for BNPL products in brick-and-mortar stores. Affirm says 16.9 million people use its services and the company has more than 266,000 merchant partners.
Affirm is eyeing international expansion and has launched a debit card that allows customers to pay in advance or in installments. At last month’s investor day, Affirm announced plans to introduce spending accounts tied to debit cards that enable ATM access and direct deposit capabilities.
“It’s going to be very different over the next year or two,” said Dolev, who rates Affirm stock a buy. “They’ve got the brand. What are they going to do with it? They’re going to turn it into a full-fledged financial services company.”
Hayes thinks there’s reason for further skepticism. He said Affirm faces an “uphill battle” competing with established players like PayPal and Block, as well as credit card companies like American Express, Citi and Chase, which have moved into installment lending.
“It’s David versus Goliath. Goliath will win,” Hayes said.
Hayes said Affirm is trying to follow the same path as online financial company SoFi, which has “a thousand different projects and tries to claim to be as big as JPMorgan, but at the end of the day, it just doesn’t work.” said.
BNPL lenders also face an increased risk of users not making payments on time. A March report from the Consumer Financial Protection Bureau found that BNPL users, on average, are more likely to have higher levels of credit card debt. According to the CFPB, BNPL borrowers tend to have lower credit scores, with the average subprime score ranging from 580 to 669.
The home screen of the Affirm website is displayed on a laptop in an organized photo taken on December 9, 2020 in Little Falls, New Jersey.
Gabby Jones Bloomberg | Getty Images
An Affirm spokesperson would not comment on the matter, but pointed to past comments by company executives.
“As our network expands, our moat gets deeper,” Levchin said at the company’s investor forum in November. “You can get more data, take on more deals, and meet more people.”
Affirm’s default rates remain low by industry standards. While the average delinquency rate for peers such as LendingClub, SoFi, Upstart and OneMain Financial rose from 5.7% to 6.3% between January and November, Affirm’s delinquency rate fell from 2.8% to 2.6%, Jeffrey said. analysts said in a report last month.
Affirm says it makes loan decisions based on a variety of data points in addition to users’ credit scores.
“Our process includes examining credit report data, but may also include things unique to Affirm, such as what we know about the merchant and the products they are trying to sell,” Levchin said in a release last year. There is a gender,” he said.
As BNPL adoption increases, regulators are closely monitoring the sector. Last week, three U.S. senators sent a letter to the CFPB asking the agency to monitor the increased use of BNPL during the holidays, saying it could impose an undue burden on consumers. In September 2022, the CFPB announced that it would strengthen its oversight of BNPL in line with credit card companies.
Wells Fargo earlier this month described BNPL loans as “phantom debt” that could lull consumers into “a false sense of security that small payments add up to big problems.” published a report explaining that. As it stands, the industry “is not yet a major problem for consumer spending,” wrote Wells Fargo economists Tim Quinlan and Shannon Seely Grein.
Because BNPL’s loans are not currently reported to the major credit bureaus, there is “no way to know when this phantom debt could pose significant problems for consumers or the broader economy,” they wrote. ing.
clock: Payment trends in 2024
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