Online Shopping Dominates Holiday Sales Results so Far

Affirm’s stock quintupled this year, beating all tech peers, on buy now, pay later boom

In a stunning reversal of fortune, Affirm, the point-of-sale lender, has experienced a meteoric rise in 2023, defying the odds and outperforming all other U.S. tech companies valued at $5 billion or more. 

Affirm’s stock quintupled this year, beating all tech peers, on buy now, pay later boom

The company's shares surged an impressive 430% this year, marking a stark contrast to the dismal performance that saw them plummet by 90% in 2022.

The narrative of Affirm's resurgence begins with the challenges it faced just a year ago. Amid rising interest rates, recession fears, and weakening consumer spending, the company's shares tumbled, erasing billions in market value. Fast forward to the present, and the script has flipped. The Federal Reserve's indication of interest rate cuts and a series of strategic partnerships, including an expanded alliance with retail giants Amazon and Walmart, have propelled Affirm to new heights.

This impressive turnaround is not only a testament to Affirm's resilience but also reflects broader shifts in the landscape of Buy Now, Pay Later (BNPL) services. Founded in 2012 by PayPal co-founder Max Levchin, Affirm competes in this burgeoning market against players like Klarna, Block's Afterpay, and Zip. The BNPL model, where consumers split purchases into interest-free installments, has gained traction, and Affirm's success in this space has been a pivotal factor in its resurgence.

Affirm's journey in the public market commenced in January 2021, coinciding with the surge in BNPL adoption fueled by the COVID-19 pandemic. However, by early 2022, the company faced a significant setback, with its share price plummeting over 60%. Soaring interest rates compounded the challenges, leading to a workforce reduction of 19% in February 2023.

The turning point came in August, following Affirm's fiscal fourth-quarter earnings report. New merchant deals in diverse sectors and an announcement of BNPL services at Walmart's self-checkout kiosks fueled a remarkable comeback. As the year draws to a close, Affirm's shares have more than doubled in the fourth quarter, reinforcing the company's resurgence.

Despite this dramatic bounce back, Affirm's shares remain approximately 70% below their peak in November 2021. Looking ahead to 2024, Affirm faces an environment of cooling inflation and optimistic interest rates. Dan Dolev, managing director at Mizuho Securities, believes Affirm is well-positioned to retain users, pointing to new merchant deals and the expanding market for BNPL offerings in physical stores.

Some, like Tom Hayes, chairman at Great Hill Capital, view Affirm's journey as an "uphill battle" against established operators like PayPal and Block, as well as credit card giants such as American Express, Citi, and Chase. Affirm's foray into various projects draws parallels to the struggles of online lender SoFi.

The BNPL sector, including Affirm, faces heightened risks associated with users failing to make timely payments. A report by the Consumer Financial Protection Bureau highlighted that BNPL users tend to have higher levels of credit card debt and lower credit scores. Despite these challenges, Affirm's defaults remain low compared to industry standards.

As Affirm positions itself for 2024, the company is eyeing international expansion and diversifying its services. The launch of a debit card, plans for a spending account tied to the card, and an international footprint signal Affirm's ambitions to evolve into a comprehensive financial services firm.

The evolving landscape of BNPL services has also caught the attention of regulators. Last week, three U.S. senators urged the Consumer Financial Protection Bureau to monitor the growing usage of BNPL during the holidays, citing concerns of consumer overextension. The industry's current lack of reporting to major credit agencies has prompted discussions about the potential risks posed by this "phantom debt."

Affirm's journey in 2023 has been nothing short of remarkable, a testament to the company's adaptability and resilience. As it navigates the complexities of the financial services sector, the story of Affirm remains a captivating one, offering insights into the challenges and triumphs of a company striving to redefine the landscape of modern consumer finance.