Where Will Affirm Stock Be In 5 Years?

Buy now, pay later services have skyrocketed in popularity over the last few years as consumers have flocked to an alternative to high-APR credit cards. When a customer uses BNPL, they can split their purchase into installments at the point of sale.

That feature is often offered with zero interest and no fees, which is why consumers have quickly adopted the offerings from companies like Klarna, Afterpay, and Affirm (NASDAQ: AFRM).

The latest earnings result from the latter proves how popular and lucrative BNPL has become. Affirm stock skyrocketed over 30% when the company blew away revenue and earnings expectations. AFRM is now up 118.02% over the past 12 months.

That may lead some investors to wonder if Affirm can go much higher but the stock had been on a downtrend this year, and the share price is still down over 6% year-to-date even after the recent rally. Affirm is on track to become profitable, and it has established powerful partnerships with some of the biggest brands in the world.

Why Did Affirm Stock Rise?

After Affirm delivered its earnings results for the fiscal fourth quarter of 2024 ended June 30, there was good reason for the stock to jump. The company’s revenue of $659 million was a 48% year-over-year improvement and it was 8.89% better than analysts expected.

Affirm’s net loss slimmed from $206 million last year to $45.1 million in fiscal Q4. The company’s diluted EPS of -$0.14 was almost 70% higher than analysts had predicted.

Affirm has profitability in its sights and a clear path to get there. In his letter to shareholders, Affirm Founder and CEO Max Levchin highlighted the company’s gross merchandise volume.

“We connect buyers to sellers, in a network for payments, where each transaction is an individually-priced, honest deal for the buyer and a genuinely incremental sale for the seller,” said Levchin. “So long as our transactional unit economics stay positive (and preferably in our target range of 3-4% revenue less transaction costs as a percentage of GMV), the path to reaching any profitability goal is simply more transactions.”

Affirm’s GMV increased by 31% to $7.2 billion in fiscal Q4, and the total number of transactions on its network jumped 42% to 24.7 million. Its current customers are also using their Affirm cards more–the average number of transactions per active customer was 4.9 compared to 4.6 last year.

Will Affirm Stock Keep Going Up?

It was a banner quarter in many ways for Affirm, topped off with positive guidance. Affirm’s leadership projected revenue for Q1 FY25 to be between $640 million to $670 million, which outstripped analysts’ expectations of $625 million.

Many consumers have turned to BNPL companies because of high interest rates but, if the Federal Reserve lowers rates as many expect, it could work in Affirm’s favor. Analysts from Bank of America said that lower interest rates could increase Affirms gains and lower its funding costs.

Affirm has also been able to establish itself with some of the largest retailers in the world, such as its deal with Amazon to offer BNPL at the e-commerce giants checkout.

The company also announced that Affirm BNPL will be integrated in Apple Pay. Apple previously offered its own in-house service, Apple Pay Later, but it became apparent to the technology giant that it was easier to outsource to Affirm.

Affirm’s leadership said it didn’t expect an substantial impact from the deal in fiscal year 2025. However, integration into the leading digital wallet which is available on over two billion Apple devices will have an impact. Some analysts have estimated that the Apple Pay deal will open up a $12 billion market for Affirm.

What Do Analysts Say About Affirm Stock?

Despite the big deals and earnings beats, Wall Street analysts are still hesitant to fully endorse AFRM. Out of 19 analysts who have rated the stock, 10 rate it is as a Hold.

There are 7 buy ratings on AFRM, including one analyst who believes the stock can outperform the market over the next 12 months. The highest forecast is $65 per share, which would be a 47.9% improvement over where the stock currently trades.

However the average price forecast is $40.23 per share, which would be an 8.5% drop over the next year. Two Sell ratings exist on Affirm, and the lowest price target is $20 per share. That would be a 54.4% drop over the next year.

Is Affirm Stock Undervalued?

The analysts still have trepidations about Affirm, and the rapid rise of buy now, pay later providers has caused some concerns. BNPL providers don’t currently have to report their loans in the way that credit card companies do, and regulators are concerned that there is a skyrocketing amount of low quality BNPL debt.

However, Affirm’s leadership pushed back and said that it’s rare for consumers to not repay their loans, and that BNPL debt is only around 1% of credit card debt.

It could be that the analysts are still trying to get a handle on the company’s valuation. BNPL competitor Klarna is headed for an IPO, but it’s not listed yet and recently announced a layoff. Afterpay is owned by payments giant Block, formerly Square.

A rough point of comparison might be PayPal, which has a price-to-sales value of 2.5. Affirm’s P/S is 5.8x, so the company is overvalued in that regard. However, PayPal has a much more established and varied business.

Where Will Affirm Stock Be In The Next 5 Years?

Affirm stock is likely to reach $40.19 per share according to a 5 year discounted cash flow forecast analysis.

The uncertainty around interest rates, regulation, and valuation might have some Wall Street analysts on the fence, but investors have continued to buy in. Affirm is one of the leading providers of a service that has caught on like wildfire in an economy where consumers exploit every payment option on offer.

Even if the economy improves, the company has already enjoyed significant traction with its partnerships. As Affirm begins to realize revenue from the Apple deal, the company has the potential to become profitable and stay that way for some time to come.

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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.