Fintech
This hyper-growth Fintech stock is a hot buy after announcing its blockbuster new partnership
This upcoming wedding speaks volumes about the “Buy Now, Pay Later” industry.
The world takes notice every time the tech giant and iPhone maker Apple does whatever it takes. CEO Tim Cook has said that Apple doesn’t emphasize being the first to do something because being the best is much more important.
Knowing this, the company announced the partnership with Buy Now, Pay Later agency To assert (AFRCM -0.82%) to offer loans through Apple Pay caught my attention. Ironically, investors have met Affirm’s stock with: Meh. Stocks are lower now than before the announcement!
So, is the market asleep or is there something wrong?
What could Apple’s decision to partner with Affirm mean?
The stock market hates uncertainty, which is why many new and less established companies can spend years battling market skepticism. Says it’s fighting that battle now; shares are down 80% from their previous high, even as the company has made a lot of business progress (more on that later). Why? Its core business, Buy Now, Pay Later loans, could be seen as a commodity. Apple thought so when it launched its in-house Buy Now, Pay Later product Apple Pay Later in March 2023.
Apple’s decision to close the business just over a year later and outsource it to Affirm speaks volumes. Two main claims could be made. First, he claims that Apple was unhappy with the consumer experience its service provided. Offering the best user experience is Apple’s bread and butter, the source of its competitive advantagewhich is why the Apple ecosystem is so damn attractive.
At the same time, one could argue that Apple’s decision to partner with Affirm is, in the same light, a compliment to Affirm’s product, which features myriad loan types with varying terms and durations. After all, Apple chose Affirm over everyone else.
Second, it challenges the idea that buy-now, pay-later lending is a commodity anyone can copy. If it were that easy, why did Apple change its mind so quickly? Sure, anyone can lend money, but not everyone is good at it. It’s another nod to Affirm’s edge in the industry.
Apple brings with it a lot of long-term growth potential
The most obvious aspect of the partnership is the immense growth potential that Apple’s user base adds to Affirm’s growth story. Affirm is integrating its loans directly into the Apple Pay interface, allowing users to seamlessly become Affirm customers without leaving their digital wallets.
And Apple’s user base is huge. According to Capital One, there are approximately 60 million Apple Pay users in the United States, which could grow to over 75 million by 2030. The claim is not insignificant; the company has 17.8 million total active users. Even assuming some overlap, that’s instant exposure to a customer base nearly four times Affirm’s current size, a notable opportunity that should see Affirm pick up users once things roll out.
Of course, not everyone will use Buy Now, Pay Later loans, but it is undoubtedly the best customer funnel a company like Affirm could dream of. Make no mistake: this is a big win for Affirm in the long term.
Because Affirm was a buy even before this
This is not to detract from the partnership with Apple, but it’s worth pointing out that Affirm has already made deep inroads into the retail space. It works with over 292,000 active merchants and has partnerships with other heavyweights, including Amazon, Shop, WalmartAND Target.
Affirm went public during a wild market a few years ago, so it’s fair to say that the stock’s valuation was set to cool. Affirm has also been struggling with rising interest rates, which has slowed growth for several quarters. However, note the company’s turnaround with revenue growth of 51% year-over-year in the most recent quarter. Meanwhile, the valuation (enterprise value to sales) remains relatively suppressed.
AFRM EV to Revenue (forward) data of Y-Charts
Affirm is growing rapidly again, and the partnership with Apple hasn’t even started yet. Management doesn’t think it will have a material effect in the next fiscal year (the launch will take time), so investors are seeing a path to strong growth that could start in the next 18 months and last for some time.
Investors may start to feel good about the stock again as time goes on. For now, it’s hard to find a fintech stock with more upside over the next few years than Affirm.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Justin Pope has positions in Affirm. The Motley Fool has positions and recommends Amazon, Apple, Shopify, Target and Walmart. The Motley Fool has one disclosure policy.