Will he assert a trillion dollar share by 2030?

To affirm (AFRM -5.72% ), a ‘buy now, pay later’ (BNPL) service provider, has been a hot fintech action this year. It went public in January at $ 49 per share, opened at $ 90.90 on day one, and is currently trading near $ 120, giving it a market cap of almost $ 30 billion. However, Affirm is still much smaller than Square (SQ -5.64% ) (soon to be named Block, as of December 10), which is valued at nearly $ 90 billion, or Pay Pal (PYPL -1.72% ), which has a market cap of $ 210 billion. Both of these digital payment companies have grown in the BNPL market over the past year.

Could Affirm grow into a much bigger company over the next decade? Let’s take a look at its business, potential growth rates, and long-term valuations to see if it has a chance of becoming a trillion dollar company by 2030.

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Can Affirm Disrupt Traditional Credit Card Companies?

Affirm’s primary goal is to disrupt traditional credit card companies. Its BNPL service allows customers to split larger purchases into smaller payments with no hidden or late fees, then calculates interest payments with a fixed amount instead of compound percentages.

The company performs a soft credit check to facilitate its “microloans” and promotes its platform as a cheaper and more transparent alternative to credit cards for businesses and consumers. It served 8.7 million active consumers and 102,000 active merchants in its most recent quarter. The company has a growing list of partners which includes Amazon, Walmart, Target, Shopify, and American Airlines.

Amazon’s partnership with Affirm and the e-commerce giant’s recent decision to ban Visa UK payments highlight this disruptive potential. PayPal has also rolled out its own BNPL service over the past year and has stepped up that effort by acquiring the Japanese BNPL platform Paidy. Square has agreed to buy Australian platform BNPL After payment (APT -4.32% ) earlier this year.

Affirm and these other BNPL platforms will probably never make credit cards obsolete. But, they could carve out a high-growth niche for themselves and force credit card providers and their issuing banks to lower their fees and interest rates.

The growth potential of the BNPL market

The global BNPL market was valued at $ 4.1 billion in 2020, according to Grand View Research, and could grow at a compound annual growth rate (CAGR) of 22.4% from 2021 to 2028. The research company estimates that growth will be primarily driven by Gen Z and Millennial consumers, especially those with lower credit scores and cannot qualify for better credit cards with lower interest rates.

If Affirm simply matches the projected growth rate of the market, its revenue could increase from $ 870.5 million in FY2021 to nearly $ 3.6 billion in FY2028. grow by 22% annually over the next two years, it could generate nearly $ 5.4 billion in revenue in fiscal year 2030.

Affirm is currently valued at 38 times last year’s sales. If it manages to maintain this high price-to-sales ratio over the next ten years and matches Grand View’s market forecast, it could be worth more than $ 200 billion by the end of 2030. However, Affirm has increased. Its revenue at a CAGR of 81.5% between FY2019 and FY2021. Therefore, its pioneering advantage and its large partnerships could allow it to grow faster than the entire BNPL market.

Analysts are already expecting Affirm’s revenue to grow by more than 40% this year and next. If Affirm grows at a 35% CAGR between 2021 and 2030, its revenue could reach $ 13 billion by the last year. If its shares are still trading at 38 times sales by then, Affirm could be worth nearly $ 500 billion by 2030.

While this is an ideal scenario that does not take into account competitive threats from other BNPL platforms, a potential recession, or other macroeconomic challenges that arise over the next nine years. As a result, Affirm could generate some big multi-bagger wins over the next decade, but his chances of joining the 12-zero club on their own are almost nonexistent.

Look beyond market caps

Instead of wondering if Affirm will ever become a trillion dollar stock, investors should focus on its short to medium term challenges. The company still has customer concentration issues, is deeply unprofitable, and will face stiff competition as the BNPL market grows. Affirm must overcome all of these issues before assuming that the business will even be there in 2030.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Questioning an investment thesis – even our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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