Fintech
This Hyper-Growth Fintech Stock Is a Hot Buy After Announcing Its Blockbuster New Partnership
This upcoming wedding says a lot 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 partnership announced by the company with Buy Now, Pay Later agency To assert (AFRM -0.82%) to offer loans through Apple Pay caught my attention. Ironically, investors greeted Affirm’s stock with: Meh. Stocks are lower now than they were before the announcement!
So, is the market asleep here 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. Affirma is fighting this battle now; shares are down 80% from their previous high, despite the company making 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 internal Buy Now, Pay Later product Apple Pay Later in March 2023.
Apple’s decision to close the business a little over a year later and outsource it to Affirm speaks volumes. There are two main claims that could be made. First, it says that Apple was not satisfied with the consumer experience that its service provided. Providing the best user experience is Apple’s bread and butter, its source competitive advantagewhich is why the Apple ecosystem is so damn attractive.
In the same breath, one could argue that Apple’s decision to partner with Affirm is, similarly, 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 was Apple so quick to jump ship? Sure, anyone can lend money, but not everyone can do it well. It’s another nod to Affirm’s edge in the field.
Apple brings enormous long-term growth potential to the table
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. Second Capital Onethere are approximately 60 million Apple Pay users in the United States, which could grow to over 75 million by 2030. Affirm is no different: the company has 17.8 million total active users. Even assuming some overlap, that’s immediate exposure to a customer base nearly four times the size of Affirm’s current size, a notable opportunity that should see Affirm acquire 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 isn’t to detract from the partnership with Apple, but it’s worth pointing out that Affirm has already made a deep inroad into the retail space. It works with over 292,000 active merchants and has partnerships with other heavyweights, including Amazon, Shopify, WalmartAND Target.
Affirm went public during a frenzied market a few years ago, so it’s fair to say the stock’s valuation was due to cool. Affirm has also been grappling with rising interest rates that have 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 evaluation (value of the company to sales) remains relatively suppressed.
AFRM EV on Revenue (Forward) data of Y-Charts
Affirm is growing rapidly again and the partnership with Apple has not yet begun. Management doesn’t think it will have a material effect in the next fiscal year (the rollout 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 a position in Affirm. The Motley Fool has a position in and recommends Amazon, Apple, Shopify, Target, and Walmart. The Motley Fool has a disclosure policy.