Affirm (NASDAQ: AFRM) is already a major player in the buy now, pay later (BNPL) market. But according to Loop Capital, there’s more upside ahead. The firm recently initiated coverage of the company with a Buy rating and a $105 price target, noting that AFRM is a high-quality growth story in the consumer fintech sector.
Affirm Has Built a Large Business
Affirm already has plenty going for it. The company facilitates more than $50 billion in annual gross merchandise volume (GMV), connecting more than 27 million consumers with roughly 500,000 merchants. Those numbers demonstrate that the company has successfully built a sizable ecosystem.
But Loop Capital believes one particular statistic could be even more important: customers currently use the company’s platform fewer than seven times per year on average.
That leaves a lot of room for growth.
For comparison, Loop estimated that an average Visa credit card generates about 70 transactions per year. AFRM obviously isn’t identical to a traditional credit card, but the comparison highlights how early the company may be in its journey toward becoming a more frequent part of consumers’ everyday spending.
If Affirm can increase how often existing customers use its products, it could potentially generate substantial additional volume without having to find an entirely new customer for every transaction.
AFRM Looks Especially Interesting Next to Klarna
The most compelling part of Loop Capital’s argument may be what happens when Affirm is compared with its biggest BNPL competitors. Klarna (NYSE: KLAR) is considerably larger than Affirm based on GMV. Yet, according to Loop, Affirm generates 40% more transaction profit dollars despite being only about one-third of Klarna’s GMV.
The difference becomes even more dramatic when looking at adjusted operating profit. Loop estimates that Affirm generates roughly 9 times as much adjusted operating profit as Klarna.
The company’s stronger profitability suggests that the company may have better economics behind its business than its smaller GMV figure initially implies. Loop attributes much of that advantage to Affirm’s higher mix of installment-loan purchase volume and lower marketing spending.
The BNPL Market Is Getting Much Bigger
The BNPL market was valued at approximately $156.58 billion in 2023 and is expected to surpass $1 trillion by 2028. That’s substantial potential expansion in just a few years.
Consumer finances are another factor driving interest in flexible payment options. U.S. household debt recently reached a record $18.2 trillion, highlighting how heavily consumers are relying on credit and other forms of financing.
At the same time, BNPL isn’t limited to discretionary purchases anymore.
According to a LendingTree survey cited by CBS News, roughly one-quarter of Americans are now using BNPL loans to pay for groceries, up from 14% the previous year. Consumers are also increasingly using these services to finance clothing, technology and household goods.
AFRM’s Growth Could Be Just Beginning
Put all of those pieces together, and it’s easier to understand why Loop Capital is bullish on AFRM. The company already has tens of billions of dollars in annual GMV, tens of millions of consumers and hundreds of thousands of merchants. Yet customers are still using the platform fewer than seven times a year on average.
Of course, strong growth expectations don’t guarantee that the stock will reach Loop Capital’s $105 target. Competition, consumer credit conditions and the overall economy will continue to matter. Still, Loop Capital’s argument is strong: Affirm doesn’t necessarily need to create a new market to keep growing. It may simply need to capture more of the market it has already built.
And if consumers begin using the platform more like they use their everyday credit cards, the company’s current size could become even more explosive than it is now.
