Affirm: When Fear Creates Opportunity

seekingalpha2021-07-14

Summary Affirm was a hot IPO from earlier this year, but is now below its IPO price, at 52-week lows. There is fear of competition in the buy now, pay later space, and tech giant Apple is now getting...

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AlphaSpiker
·2021-07-15
Only a exponential earning records can save AFRM. No other way around.
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shika
·2021-07-14
??
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traveladdict
·2021-07-14
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noobieq0000
·2021-07-14
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While the market's sentiment towards affirm is currently negative, long-term investors could have an opportunity to acquire a quality company with bright growth prospects.\nAffirm brings buyers and sellers together on its digital platform, and younger consumers favor its installment services over traditional transaction methods. With strong merchant partnerships under its belt, Affirm is poised to be a strong competitor in the buy now, pay later industry - even if competitors are present.\nAffirm - A Better Way To Buy\nAffirm is a technology platform that facilitates e-commerce transactions at the point of sale. The value Affirm provides is experienced both on the merchant and consumer ends.\nSource: Affirm Holdings\nAffirm sits between buyers and merchants to create a simple interface to facilitate commerce. Consumers get simple financing tools such as fixed payment installation plans with no hidden fees or confusing rules. Merchants can advertise their products on the platform, receive data and analytics about their traffic, and achieve a higher conversion on sales because Affirm is nurturing the transaction with its interface.\nThis creates a win-win for both merchants and consumers versus traditional commerce channels that make the merchant solely responsible for their traffic and consumers responsible for completing the transaction. Both sides are isolated from one another.\nSource: Affirm Holdings\nTraditional financial institutions have historically offered poor consumer experiences and are generally thought of as a \"necessary evil.\" However, Affirm has managed to build a positive image in the eyes of consumers and is held in high regard with its customers. People want to buy through Affirm; they don't have to.\nTremendous Growth Runway\nOne of the compelling aspects about Affirm and the buy now, pay later industry is the massive addressable market that it represents. E-commerce sales total roughly $600 billion in the United States and $3.4 trillion globally.\nSource: Affirm Holdings\nE-commerce has been an investing talking point for years, but the truth is that we remain in the early innings of the global story. Change takes time, especially in huge addressable markets. Affirm's 2020 merchant volume, the value of purchases on its network, was just $4.6 billion but grew 77% over 2019.\nDriving growth is both the expansion of the platform's customer count and merchant base. Affirm currently has about 4.5 million users. From a merchant's standpoint, Affirm has roughly 7.9K on its network with a collection of premium brands, led by Peloton (PTON), representing about a fifth of Affirm's business. Affirm alsorecently partneredwith Shopify (SHOP) to exclusively power Shop Pay installments in the US.\nSource: Affirm Holdings\nWhat About Competition?\nThe most likely culprit for Affirm's poor price action over the past couple of months is the market's fear that payment services as a whole (including buy now, pay later) is already a very crowded space.\nAffirm is not the only company of its type, with pure-play competitors including Klarna, Afterpay (OTCPK:AFTPF), and larger companies such asPayPal(PYPL). Apple (AAPL) recentlyconfirmed intentionsto launch a buy now, pay later option for consumers using Apple Pay as a payment method.\nSo should investors be worried about competition? Here is why I think the competition angle is overrated. First, we are talking about a multi-trillion dollar long-term addressable market. There is plenty of room for multiple companies to exist, grow, and thrive over time.\nSecondly, this space will be about winning over merchants, which is done by providing value. Streaming company Roku (ROKU) has scaled its business by providing value to its partners to grow its footprint over time - despite the presence of big players like Amazon (AMZN) and Alphabet (GOOG) (GOOGL).\nSource: Affirm Holdings\nWhile not quite \"apples to apples,\" I see Affirm in a similar light. Simply existing in the space is not enough, and Apple needs to prove its value as an entrant in the space. Meanwhile, Affirm is seeing its merchants steadily spend more money on its platform over time. This would obviously imply that Affirm's platform is valuable in driving transactions for its merchants. Affirm has had success striking strong merchant partnerships, and that needs to continue moving forward.\nFear Creates Opportunity\nIt's common for newly public companies to experience volatility post-IPO, and Affirm has been no exception. Perhaps fueled by competitive fears, the stock currently trades near 52-week lows.\nSource:YCharts\nAffirm is currently unprofitable, but it's a young, growing business trying to grab market share. In the company's FY21 Q3, the company burned $229 million in operating losses, but Affirm has $1.6 billion in cash on hand, so near-term liquidity is not a concern.\nIn the meantime, analysts expect Affirm to finish out the year with 63% revenue growth and continue growing in the years ahead. I wouldn't be surprised to see Affirm perform well above 2022 and 2023 estimates.\nSource: Seeking Alpha\nAs a result, the stock is trading in the mid-teens on a forward basis PS ratio, which isn't a bargain necessarily, but an attractive valuation for a company with the business model and growth runway that Affirm has.\nWrapping Up\nAffirm is a strong horse that is being lost in a crowded field. It isn't easy to project where the competitive landscape will settle over the long term, but Affirm appears to have the necessary ingredients to land among the winners. For patient investors, the recent drop could prove to be a solid buying opportunity in hindsight.","kind":"news","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":144663853,"gmtCreate":1626280775772,"gmtModify":1703757131056,"author":{"id":"3573008930783156","authorId":"3573008930783156","name":"AlphaSpiker","avatar":"https://static.tigerbbs.com/7bf4e96af844a7e9da5720d6045b3532","vip":1,"crmLevel":6,"crmLevelSwitch":1,"idStr":"3573008930783156","authorIdStr":"3573008930783156"},"htmlText":"Only a exponential earning records can save AFRM. No other way around.&nbsp;","listText":"Only a exponential earning records can save AFRM. No other way around.&nbsp;","text":"Only a exponential earning records can save AFRM. 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