Return of Confidence: Is Affirm on a Recovery Path?

Affirm, traded on NASDAQ as a leading provider of "Buy Now, Pay Later" (BNPL) services, has experienced a turbulent journey since its IPO in January 2021. Starting at an initial price of $49, the stock value soared to an impressive $168.52 in November of the same year, only to fall below $9 in the subsequent December. Initially, investors were enthusiastic about Affirm's rapid growth and its pioneering role in a booming market. However, the initial euphoria faded as growth slowed and rising interest rates undermined the company's valuation while its losses came to light. The stock is now trading again at approximately $66, due to a decline in interest rates and renewed growth. Yet the question remains: Can Affirm maintain this momentum and continue to drive the stock higher over the next three years? Affirm's BNPL platform offers the option to split purchases into smaller installments, which is particularly attractive to younger and lower-income consumers who lack access to credit cards. The platform charges no interest on four installments and avoids compound interest and hidden fees. Affirm's fee structure is often more appealing to merchants than the 1.5 to 3.5 percent participation fees of most card providers, prompting major retailers such as Amazon, Walmart, and Target to integrate Affirm as a cost-effective alternative to traditional card payments. During the pandemic, Affirm boomed due to an increase in online shopping, government aid packages, and social media marketing campaigns. Affirm was able to significantly expand its merchant base, particularly through integration with Shopify. However, as the pandemic-driven momentum waned and consumer spending moderated due to inflation, growth slowed in the fiscal year 2023. The once lucrative transactions with Peloton dried up in more challenging market conditions. Pressure from growing competition, including Block’s Afterpay service and PayPal’s Pay in 4, combined with ongoing losses, led to the stock's decline.