were falling Monday after one Goldman Sachs analyst said that despite the lending company’s leading position in the growing Buy Now Pay Later business, it faces multiple challenges.
Michael Ng initiated coverage of
(ticker: AFRM) with a Neutral rating and a $22 price target on Sunday. Ng wrote in a research note that Affirm “should be a key driver and beneficiary of U.S. BNPL industry growth.” But it faces the potential for a weakening consumer given high inflation and rising interest rates pressuring household spending.
The company’s transaction margins “likely will be pressured by increased provision for credit losses and funding costs against the backdrop of rising interest rates and weakening consumer credit,” Ng said.
BNPL is a way for shoppers to pay for their purchases in even installments over a short period, usually with 0% interest. Other BNPL providers include Klarna and Afterpay. Recently,
(PYPL) introduced a new BNPL option for users while
(AAPL) announced its plans to enter the BNPL space soon.
Ng also cited competition from these other providers as a concern for Affirm moving forward.
On top of growing competition and rising interest rates, global regulators have become increasingly focused on understanding and potentially regulating BNPL products, Ng said.
“Although we view Affirm as best positioned among BNPL providers in terms of consumer disclosures, transparency of product, and underwriting, regulation poses a risk to all providers as it could reduce the pace of consumer and merchant adoption,” Ng wrote.
On a more positive note, Ng does see some potential benefits to the company’s future, including partnerships with some major retailers such as
(TGT). Shoppers can choose to pay for certain purchases from the online stores of these retailers through multiple payments with Affirm.
Ng isn’t the only analyst with a Hold rating on the stock. Of the 16 analysts polled on
five rate the stock at Hold, eight call it a Buy and three rate it as a Sell.
Shares of Affirm were 6.7% lower Monday to $21.73 while the
fell 1.1%. The stock has struggled to gain traction this year, sinking 78% in 2022 while losing 87% from its closing high of $168.52 in November 2021.
Write to Angela Palumbo at [email protected]