Affirm Vs PayPal Stock: Which Is Best?

Affirm Vs PayPal Stock: Affirm and PayPal are two of the hottest fintech stocks on the market. Both companies saw their share prices run up throughout 2021 as the economy recovered from the COVID-19 pandemic.
Each has now shed a great deal of their respective values, leaving investors eyeing them as potential bargains. But which is the better buy?


Buy now, pay later company Affirm Holdings (NASDAQ:AFRM) is one of many high-growth fintech stocks that has suffered outsized losses in 2022. The stock has sold off by more than 75 percent this year, creating the possibility for large gains if and when a rebound occurs.
Despite its selloff, Affirm has grown remarkably well over the past year. Q2 revenues were $361 million, 77 percent higher than in 2021.
The company’s consumer base grew by 29 percent over the same period, and transactions per active customer rose by 15 percent. Most strikingly, the number of merchants using Affirm increased from 8,000 in 2021 to 168,000 in the most recent quarter.

One of the most important aspects of Affirm’s business is its partnership with Amazon. Affirm provides customers on the massive eCommerce site with the option to pay for their purchases in installments. The company is also partnered with Walmart, allowing it to bring in revenue from both giants.
Although Affirm certainly has some promising factors, its losses have mounted over the past year. The company’s Q2 operating loss was $196.2 million, compared with just $26.8 million a year earlier.
The rate of loss is especially concerning in light of the rate of cash burn at Affirm.
At the end of 2021, the company had $2.57 billion in cash and cash equivalents. By the end of Q2, that reserve had been reduced to just $1.47 billion. This rapid cash drawdown could be a major red flag for investors if it doesn’t begin to ease up soon.

Affirm’s share prices have also suffered from the ending of a hype cycle associated with the buy now, pay later business model.
As with many new financial technology models, investors saw huge opportunities and drove prices to extreme heights as a result.
Now, the market is rethinking the value of buy now, pay later. Affirm certainly still has room for a rebound, but it’s unlikely that it would regain its previous highs anytime soon.


PayPal (NASDAQ:PYPL) is a much more established business than Affirm, having been one of the first major fintech payment companies. Having lost nearly 50 percent of its value this year, PayPal could now be an attractive buy for investors.

The company reported $6.81 billion in revenues in Q2, a 9 percent increase from a year earlier. This slightly beat out analyst expectations, which stood at $6.79 billion.
Like Affirm, PayPal has seen a major blow to its earnings over the last year. In Q2 2021, the company earned $1.18 billion.
By Q2 of this year, it lost $341 million. Savings from increased efficiency, however, could turn this trend around. PayPal expects to cut costs by $900 million this year, likely putting it much closer to positive territory.
PayPal has also been expanding from payment provision into a more comprehensive suite of financial services. PayPal’s platform is growing to include everything from checking and savings accounts to direct deposit options. The company even offers its own buy now, pay later service, allowing it to compete directly with Affirm.

Though its user growth is slower than Affirm’s, Paypal is continuing to add new accounts. In Q2, the company reported a 16 percent jump in active accounts and a 12 percent increase in transactions per account. Given PayPal’s much larger size, sustaining this rate of growth is an impressive feat and points to ongoing consumer interest in the company’s services.
Unlike Affirm, PayPal has experienced the ups and downs of economic cycles in the past. The company survived the 2008 financial crisis and the period of stagnation that followed. Affirm is going through its first boom-and-bust cycle, which may account for the even higher levels of volatility the stock has seen.
A final point investors should consider when looking at PayPal is its massive new share buyback program. The company plans to repurchase $15 billion worth of its outstanding shares. This program will reward investors by supporting higher prices and combating share dilution.

Which Is a Better Investment?

In the short term, PayPal and Affirm could have similar levels of upside. Over the next 12 months, the median price target of $120 for PayPal would see it gain 24.9 percent against its current price of $96.06. Affirm is expected to gain 26.6 percent, rising from $25.86 to a median target of $30.
One important difference between the two companies, however, can be found in their cash flows. As noted above, Affirm is rapidly drawing down its cash reserves as its losses increase. PayPal, on the other hand, has historically delivered excellent free cash flows.
In the last quarter of 2021, for instance, the company generated $1.55 billion in free cash flows. This difference could be critical, as PayPal may be in a much better condition to weather economic downturns than Affirm is.
Overall, Affirm’s likelihood of massive growth is higher than PayPal’s. Affirm is still a young company in its high-growth phase, while PayPal is an established giant in its industry that is still growing steadily.
The choice between PayPal and Affirm fundamentally comes down to an investor’s risk tolerance. PayPal is a solid, reliable company that will very likely continue to produce good returns for shareholders.
Affirm’s stock could generate massive returns if it recovers, but the risks associated with it are much, much higher. Investors who like high-risk, high-reward assets may be interested in Affirm, but PayPal appears to be the better buy for the majority of investors.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.