Affirm Holdings (AFRM), a leading player in the buy now, pay later (BNPL) space, faces renewed pressure as rival Klarna secured a significant partnership with OnePay, a fintech company majority-owned by Walmart (WMT). This move will see Klarna exclusively powering installment loans for Walmart shoppers in the U.S., which means that Affirm will no longer be the exclusive BNPL provider for the retail giant.
Also, Walmart’s existing integration with OnePay — across its digital and physical shopping channels — gives Klarna a strategic advantage. This shift raises short-term concerns about Affirm’s top-line growth, as Walmart has been a significant partner.
Affirm responded by clarifying that it remains integrated with Walmart through its existing BNPL offerings, including the Affirm App and Affirm Card. However, the advent of a rival signals a potential headwind.
During the six months ending Dec. 31, 2024, transactions through Walmart’s integrated Affirm program accounted for roughly 5% of the company’s Gross Merchandise Volume (GMV) and about 2% of its adjusted operating income. While not a catastrophic blow, losing market share at a retailer as large as Walmart is a setback.
Investor sentiment reflected these concerns, with Affirm’s stock dropping 4.2% on Monday. The stock has already tumbled 41.9% from its recent high of $82.53, giving up most of its gains over the past year.
Neither Klarna nor Affirm has explicitly confirmed that Walmart is entirely replacing Affirm’s services. Still, it’s reasonable to assume Walmart will prioritize its fintech venture OnePay when presenting BNPL options to customers. This suggests Klarna’s new partnership represents a lost opportunity for Affirm.
While the latest development is negative, let’s examine Affirm’s financials and growth outlook to determine whether its stock is a buy, sell, or hold.
Affirm’s Road to Growth: Can It Maintain Momentum?
Affirm’s revenue model heavily relies on its commercial partnerships with merchants and e-commerce platforms. As more businesses integrate Affirm’s services, the company experiences increased GMV, consumer engagement, and revenue. However, high dependence on a few major partners makes it vulnerable to shifts in these relationships.
During the three and six months ending Dec. 31, 2024, Affirm’s top five merchant and platform partners accounted for approximately 51% and 49% of its total GMV, respectively. Amazon (AMZN) alone contributed 25% and 24% of GMV during the same periods. This concentration poses a risk — any major partner opting for a competitor could significantly impact Affirm’s growth.
Affirm is actively expanding its partnerships and diversifying its merchant base to counterbalance these risks. The company recently extended a key partnership with a major travel industry player, securing a five-year deal that includes new financing programs and additional product offerings.
Further, its collaboration with Apple Pay (AAPL) and growing integration with Shopify (SHOP) and WooCommerce will fuel GMV growth. Affirm has also ventured into the UK market, broadening its international footprint to meet the rising global demand for BNPL solutions.
Financially, Affirm has maintained strong growth. In Q2, its GMV surged 35% to $10.1 billion, accelerating from the previous quarter. Active consumers (excluding the discontinued Returnly business) grew 23% year-over-year to 21 million, marking the fourth consecutive quarter of acceleration. Meanwhile, active merchants climbed 21%.
Affirm has also made notable progress in profitability. Adjusted operating income rose to $238 million in Q2, up from $93 million a year earlier. The company’s funding capacity reached $22.6 billion, marking eight consecutive quarters of growth. Despite seasonal variations in delinquencies, Affirm maintains a strong credit profile, ensuring its loans remain attractive to buyers and enhancing its funding capabilities.
What’s Next for Affirm?
While competition remains fierce, including Klarna’s recent partnership with Walmart, Affirm continues to strengthen its market position. The company is focused on launching new products, entering new international markets, and deepening its relationships with existing partners. With consumer demand for flexible payment options on the rise, Affirm is well-positioned to capitalize on this trend.
Given its growth prospects and the significant pullback from its high, Affirm stock looks compelling from an investment standpoint.
Wall Street analysts have assigned the stock a “Moderate Buy” consensus rating. Additionally, the average price target of $76.41 suggests a potential upside of 74% from current levels, making it an attractive option for investors looking to tap into the expanding BNPL market.
