Affirm Continues to Grow, But Making Money in Buy Now, Pay Later Is Hard

Max Levchin's Buy Now, Pay Later firm is a dominant player, but it remains a tough business in which to make a profit.

(Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images) SOPA Images/LightRocket via Gett

Affirm (AFRM), the Buy Now Pay Later (BNPL) company launched by Paypal cofounderMax Levchin, announced its fiscal fourth-quarter earnings today (Aug. 25). The company reported $364 million in quarterly revenue, beating analysts’ predictions, but the company continues to be unprofitable. It lost 65 cents a share in the quarter. 

Although Affirm is one of the largest BNPL firms in the world and continues to grow, its stock—along with many financial technology companies—has had a dismal year. In November, Affirm shares traded at more than $160 a share; as of today, Affirm shares traded at about $30. After the market closed, the stock sunk more than 15 percent.

The global BNPL market was estimated at $132 billion in 2021, and some studies project that it will grow to $3.68 trillion by 2030.

Some stock analysts have expressed concern about Affirm’s future prospects in a space that is becoming increasingly competitive. Today, Affirm competes not only with other BNPL firms like Klarna and Afterpay, but also with traditional lenders and credit card companies, which have begun offering BNPL services to consumers. One advantage that Affirm enjoys is that it has an exclusive agreement with Amazon; that exclusivity, however, expires in January 2023.

The overall macroeconomic environment is a mixed blessing for Affirm. On the one hand, inflation and rising interest rates make BNPL services attractive for many consumers, because Affirm borrowers who pay back their loans on time pay no interest. On the other hand, rising interest rates also make it more expensive for Affirm to borrow the money that it in turn lends to consumers. In a research note published Aug. 23, Morgan Stanley noted that “rising rates and credit spreads have caused investors some concern around Affirm’s funding cost efficiency and ability to access incremental capital.”

Charlotte Principato, a financial services analyst at Morning Consult, studies consumer use of BNPL and believes the sector will continue to flourish, particularly as back-to-school and holiday spending picks up later this year. She expects BNPL to continue to expand beyond its hardcore audience of teens and young millennials. “There’s more Gen Xers who want to try BNPL than don’t,” Principato said in an interview. “I think there is a pent-up demand there.’


Affirm Continues to Grow, But Making Money in Buy Now, Pay Later Is Hard