Fintech
This Hyper-Growth Fintech Stock Is a Hot Buy After Announcing Its Blockbuster New Partnership
The world takes notice every time the tech giant and iPhone maker Apple does anything. CEO Tim Cook said that Apple doesn’t stress the importance of being the first to do something because being the best is much more important.
Knowing this, the company’s announced partnership with Buy now, pay later agency To assert (NASDAQ: AFRM) to offer loans through Apple Pay caught my eye. Ironically, investors greeted Affirm’s stock with: Meh. The stock is lower now than it was before the announcement!
So, has the market gone to sleep 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 proven companies can spend years battling market skepticism. Affirm is fighting this battle now; shares are down 80% from their previous high despite the company making a ton 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 advantageand that’s why the Apple ecosystem is so enticing.
At the same time, one could argue that Apple’s decision to partner with Affirm is, in the same vein, a compliment to Affirm’s product, which features a myriad of loan types with varying terms and lengths. After all, Apple chose Affirm over all the others.
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.
The story continues
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.
Why 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 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 its most recent quarter. In the meantime, the valuation (enterprise value relative to sales) remains relatively low.
AFRM EV to Earnings Chart (Forward).
Affirm is growing rapidly again and the partnership with Apple has not yet begun. Management doesn’t believe it will have a material effect in the next fiscal year (the rollout will take time), so investors see a path to strong growth that could begin 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 potential over the next few years than Affirm.
Should you invest $1,000 in Affirm now?
Before you buy Affirm stock, consider this:
The analyst team at Motley Fool Stock Advisor has just identified what they believe is the 10 best stocks for investors to buy now… and Affirm wasn’t one of them. The 10 stocks that made the cut could produce monstrous returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you have invested $1,000 at the time of our recommendation, you would have $774,526!*
Stock Advisor provides investors with an easy-to-follow success model that includes a portfolio building guide, regular analyst updates, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of the S&P 500 index since 2002*.
*Stock Advisor returns as of June 24, 2024
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 a disclosure policy.
This hyper-growth Fintech stock is a hot buy after announcing its blockbuster new partnership was originally published by The Motley Fool