Affirm Holdings (AFRM), the buy-now-pay-later (BNPL) service provider, can’t seem to catch a break in 2024. With the stock down 37.8% on a YTD basis, Affirm has been struggling mightily in the face of consistently delayed rate cut expectations. 

That significantly underperformance may be why the company’s newly announced partnership with tech titan Apple (AAPL) came as such welcome news for investors last week, with AFRM stock gapping higher on June 11 and notching a daily gain of 11% on the session.

But is this partnership with Apple enough to spark a turnaround in Affirm stock? The shares have already filled their AAPL-related bull gap, and – despite apparently encouraging news on Tuesday that Apple was killing off its own BNPL service – Affirm said in its 8-K filing that the partnership will not “have a material impact on revenue or gross merchandise volume in fiscal year 2025.” 

So, what’s the takeaway for investors here? Let’s dig deeper to understand.

Why is Affirm Underperforming?

Founded in 2012, Affirm provides a BNPL service for online and in-store purchases. They offer various consumer lending solutions, including point-of-sale loans and virtual cards. Affirm generates revenue through service fees charged to merchants and interest charged to consumers who choose to finance their purchases. It currently commands a market cap of $9.55 billion.

In fiscal Q3 of 2024, Affirm posted numbers that exceeded the Street’s expectations. Net revenues for the quarter came in at $576.16 million, up 51.2% from the previous year as the company’s core network revenue ($194.97 million, +31.3% YoY) and interest income ($315.71 million, +77.1% YoY) both recorded substantial growth. 

Quarterly losses narrowed to $0.43 per share from $0.69 per share in the prior year, and bested the consensus estimate for a loss of $0.70 per share. Affirm’s losses have continuously narrowed over the past five quarters while also beating the consensus estimate.

Key operational metrics all improved on a year over basis in Q3, including gross merchandise value (GMV), at $6.3 billion; active customers, at 18.1 million; transactions per active customer, at 4.6 million; and active merchants, at 292,300.

Additionally, Affirm reported positive cash flow from operations, with Q3 net cash from operating activities at $208.15 million, reversing its year-ago outflow of $54.28 million. That said, even though the company exited the quarter with an improved cash balance of $1.62 billion, its much higher debt level of $6.41 billion is concerning.

In Q4 2024, Affirm is expecting GMV of $6.75-6.95 billion, and revenue of $585-605 million. Analysts estimate the company’s forward revenue growth at 26.59%, compared to the sector median of 5.15%.

What Could Drive the Bull Case for AFRM Stock?

The BNPL business is projected for healthy growth in the coming years, with the market projected to expand from its current size of $109 billion in 2024 to reach $171.6 billion by 2024, representing a CAGR of 9.5%. 

By the end of 2023, 82.1 million US consumers had used BNPL for their spending and lending needs, and that figure is forecasted to reach 112.7 million by 2027. During that period, BNPL sales volumes are expected to grow from $71.9 billion to $124.8 billion, registering a CAGR of 14.8%.

As a leading player in this growing market, Affirm is well-positioned to leverage this growth. 

Another likely tailwind for Affirm will be eventual rate cuts by the Federal Reserve. Although consistently high interest rates have applied pressure to growth-fueled lenders like Affirm, indications that the Fed is getting closer to its long-awaited policy pivot should eventually remove some macro-level uncertainty that’s been lingering over the shares.

Positive Strategic Initiatives

In keeping with the rest of Apple’s artificial intelligence (AI)-fueled announcements last week, Affirm is tapped into the AI megatrend. Affirm’s AI assistant is being developed and tested in the company’s customer support chat, where over 60% of customers served did not require further human assistance.

Further, the company remains on track to reach its $50 billion GMV target, set last year with innovations like Purchasing Power and Adaptive Checkout aimed at improving checkout conversion and underwriting capabilities based on consumers’ financial preferences and repayment trends.

Finally, Affirm’s plans to expand internationally could drive future growth, as 60% of global e-commerce, excluding China, is outside its core markets of the U.S. and Canada. Affirm’s next frontier is the UK, a massive $133 billion total addressable market. Here, their existing top 3 partners already boast a 20% penetration rate, translating to an estimated potential $26.6 billion market for Affirm once they launch. 

Additionally, given the strong penetration of Affirm’s top partners across Europe, the UK could be just the beginning.

Analysts Are Split on AFRM Stock

Overall, analysts have a consensus rating of “Hold” for AFRM stock, with a mean target price of $36.07. This indicates an upside potential of about 18.1% from current levels. 

Out of 17 analysts covering the stock, 3 have a “Strong Buy” rating, 11 have a “Hold” rating, 1 has a “Moderate Sell” rating and 2 have a “Strong Sell” rating. 

Analysts have remained firmly split on AFRM following the Apple news, with Morgan Stanley (MS) backing a “Sell” and Barclays reiterating a “Buy” – suggesting that an investment in this struggling fintech stock right now might be best left to each investor’s own risk tolerance, with more volatility likely in store as Fed policy remains a near-term overhang.

On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.