As inflation remains stubbornly persistent, cash-strapped consumers are increasingly opting for "Buy Now, Pay Later" (BNPL) options to handle even everyday expenses like groceries. According to PYMNTS Intelligence, around 15 million consumers, or roughly 6.5% of the U.S. population, used BNPL installment loans for groceries or weekly food bills last year. As consumers seek alternatives to credit cards to avoid debt, BNPL stands out as a convenient option, offering the perks of credit, quick repayment, and a seamless app-based shopping experience.
The total BNPL market size is forecast to increase to $167.58 billion by 2032, growing at a compound annual growth rate of 20.7%. Consumer demand for flexible payment options, especially in e-commerce, where BNPL services offer seamless checkout experiences, is expected to be the primary growth driver.
For investors seeking exposure to this growing market niche, both Block (SQ) and Affirm Holdings (AFRM) are fintech stocks with a foothold in the BNPL space.
So, which BNPL stock do analysts like more? Let's find out.
The Case For Block Stock
Based in Oakland, Block (SQ) has a market cap of $45.2 billion, and provides financial services and mobile payments. Founded in 2009, Block has evolved from a simple mobile payments platform into a multifaceted financial services company.
Block's growth story is powered by its star products, Cash App and Square. Cash App has evolved from simple money transfers to platforms offering banking, investing, Bitcoin (BTCUSD) trading, and more, now boasting 56 million monthly active users. Square provides a suite of 30 products and services catering to businesses, helping them thrive.
Block shares have gained 62% over the past six months, compared to the S&P 500’s ($SPX) gain of 16.4%.
The stock currently trades at 2.06 times sales – lower than the transaction & payment processing services industry median, and its own five-year average of 5.53x.
Block Beats on Q4 Revenue, Raises Guidance
Shares of Block soared on Feb. 22 after it reported Q4 revenue of $5.8 billion, up 24% annually and ahead of Wall Street estimates. Its adjusted earnings of $0.45 per share improved 104.5% year over year. Block's overall BNPL platform strengthened, with a gross merchandise value of $8.6 billion, up 25% annually, driven by the company's Pay-in-Four offering and Single Use Payments.
Block's fiscal 2023 gross profit was $7.5 billion, with $3.1 billion from Square and $4.3 billion from Cash App.
For Q1, Block expects gross profit to range between $2 billion and $2.02 billion, suggesting a 17% year-over-year growth, while adjusted EBITDA is projected between $570 million and $590 million.
Analysts tracking Block expect its EPS to grow 537.5% year over year in fiscal 2024 and 102% in fiscal 2025. The fintech company is expected to report earnings on May 2.
Block stock has a consensus “Strong Buy” rating in the analyst community. Out of the 37 analysts covering SQ, 27 have a “Strong Buy” recommendation, two say it's a “Moderate Buy,” seven rate it a "Hold,” and one suggests a “Moderate Sell.”
The average analyst price target for Block is $86.70, which indicates a potential upside of 19.7% from current levels.
The Case For Affirm Stock
Affirm Holdings (AFRM), with a market cap of $9.5 billion, operates a flexible payment platform that appeals to younger demographics and those without much credit.
Affirm has expanded its merchant base and has teamed up with big players like Amazon (AMZN), Walmart (WMT), and Shopify (SHOP), setting itself up to ride the wave of BNPL's popularity.
Shares of Affirm have gained 69% over the past six months, joining SQ in outperforming the SPX over this time frame.
AFRM stock currently trades at 5.98 times sales, a premium to the industry median and its peer Block.
Affirm Slides on Soft Margin Guidance
AFRM stock declined 10.9% in one session after it reported fiscal Q2 results in early February, mainly due to disappointing guidance. However, Affirm's revenue rose 48% year over year to $591.1 million, surpassing Wall Street projections by 13.4%, and the company narrowed its net loss per share to $0.54 from $1.10 per share in the year-ago quarter.
Looking ahead, the company predicts adjusted operating margins to range between 6% and 8% for the current quarter, a significant dip from 15.7% in Q2, with revenue expected to be between $530 million and $550 million.
Analysts tracking Affirm Holdings expect the company to trim its losses to $2.45 per share in fiscal 2024 from the fiscal 2023 loss of $3.19 per share, with losses further narrowing to $2 per share in fiscal 2025.
Affirm Holdings stock has a consensus “Hold” rating in the analyst community. Out of the 17 analysts covering AFRM, two have a “Strong Buy” recommendation, 12 say it's a “Hold,” one rates it a "Moderate Sell,” and two suggest a “Strong Sell.”
The average price target of $35.57 for Affirm Holdings indicates an upside potential of 12.5% from current levels.
SQ vs. AFRM: Which Stock Do Analysts Prefer?
As BNPL demand rises, both Block and Affirm stand to benefit, potentially sparking a heated competition. However, analysts foresee Block outpacing Affirm in growth, even as AFRM continues to command a higher premium at current levels.
With a bullish "Strong Buy" consensus rating and more upside potential projected than AFRM, analysts seem to favor Block as the top BNPL stock right now.
On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
