Fintech
This hyper-growth Fintech stock is a screaming buy following the announcement of its new Blockbuster partnership
The world takes notice every time the tech giant and iPhone maker Apple does anything. CEO Tim Cook said that Apple doesn’t emphasize the importance of 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 (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, 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 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 just over a year later and outsource it to Affirm speaks volumes. Two main claims could be made. First, it claims that Apple was unhappy with the consumer experience 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 that anyone can copy. If it were that easy, why did Apple quickly abandon ship? Sure, anyone can lend money, but not everyone can do it well. It’s another nod to Affirm’s advantage in the field.
Apple brings enormous long-term growth potential to the table
The most notable 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 easily become Affirm customers without leaving their digital wallets.
And Apple’s user base is huge. According to 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
That’s not to downplay the partnership with Apple, but it’s worth pointing out that Affirm has already deeply entrenched itself in 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 frenzied market a few years ago, so it’s fair to say the stock valuation needed to cool down. Affirm has also had to deal with rising interest rates that have slowed growth for several quarters. However, note the company’s turnaround with 51% year-over-year revenue growth in its most recent quarter. Meanwhile, valuation (company value versus sales) remains relatively suppressed.
AFRM EV vs. Revenue (Forward) Chart.
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 potential in the coming years than Affirm.
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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.
This Hyper-Growth Fintech Stock Is a Hot Buy After Announcing Its Blockbuster New Partnership was originally published by The Motley Fool