Stocks marched higher to kick off November after the major indices logged substantial October gains. The Dow ticked 5.8% last month, while the S&P 500 racked a 6.9% gain, and the Nasdaq Composite rallied 7.3%.
In today’s trade alert, we’ll take a look at a quickly evolving industry and one company within it that, through its unique approach for expansion, is rapidly establishing itself as a stand-out among peers.
E-commerce exploded during the pandemic. Recent data shows that most consumers who adapted to make purchases online continue to do so even though many brick-and-mortar options have reopened. The insane uptick in online spending has given rise to an exciting take on consumer lending which means enormous potential for players in the space.
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Buy now, pay later (BNPL) is a twist on installment-based consumer lending and has been fueled by upended consumer credit markets. Firms in the space make money by charging merchants a fee to offer small point-of-sale loans that shoppers repay in interest-free installments, bypassing credit checks, empowering the customer with greater spending ability, which highly benefits the merchant.
Like all tech-centric industries, BNPL is evolving quickly. Competition in the space means that not all firms currently riding the BNPL wave will make it to shore. In this article, we’ll take a look at a few of the most promising companies that offer exposure to the flourishing BNPL space.
Affirm (AFRM) made its debut onto public markets earlier this year in one of the most talked-about IPO’s in history. Affirm priced its shares above the target range at $49 a piece. The stock soared 95% to close its first day of trading at around $97. The share price continued its ascent to an all-time high of $146.90 in February before the broad sell-off in tech stocks combined with an earnings miss caused the stock to tumble to the mid-$40’s in May. But over the past few months, Affirm stock has rebounded and seems to be gaining steam. The stock looks ready to continue its way up with help from management in the form of strategic partnerships.
Rather than targeting individual e-commerce businesses one by one, Affirm set its sights on gaining access to the enormous power offered by two of the most prominent digital retailers on the planet. The company recently signed blockbuster deals with Amazon (AMZN) and Shopify (SHOP) to place it at the checkout for countless consumer purchases.
To put it into context, Affirm currently has slightly more than 7 million customers. Shopify has a user base of 118 million, and Amazon has a user base of 200 million. Shopify and Amazon, therefore, present an opportunity for Affirm to grow its customer base by 4,470%.
Last week, Affirm announced another momentous collaboration with American Airlines (AAL). Affirm will be the “exclusive monthly BNPL provider for aa.com.”
The company’s guidance (which excludes the Amazon deal) calls for $1.175 billion in revenue for fiscal 2022, implying a growth rate of 35% and prompting analysts to increase their forecasts. The current consensus among analysts is to Buy AFRM. There are 6 Buy ratings, 4 Hold ratings, and 1 Sell rating for the stock. Affirm will be looking to display strength during its next earnings call, scheduled for November 10th. Analysts expect the company to have generated $248 million in revenue during the most recent quarter.
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