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As Markets Set Records, Here's What Sent Affirm Holdings Skyrocketing After Hours Friday

By Dan Caplinger – Aug 27, 2021 at 6:29PM

Key Points

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Find out why the buy now, pay later specialist is on the move.

Friday was a great day for the stock market, as investors celebrated comments from Fed chairman Jerome Powell. Market participants took Powell's comments as signaling a measured approach to improving economic conditions, with a likelihood that the central bank will start to ease up on its purchases of bonds but will be patient before taking more-aggressive action on interest rates.

That news send the S&P 500 (^GSPC -1.44%) and Nasdaq Composite (^IXIC) to new records and sent the Dow Jones Industrial Average (^DJI) sharply higher as well.

Index

Percentage Change

Point Change

Dow

+0.69%

+243

S&P 500

+0.88%

+39

Nasdaq

+1.23%

+184

Data source: Yahoo! Finance.

Friday isn't usually a busy time for after-hours trading, but today was definitely a huge exception to that rule. Affirm Holdings (AFRM -7.96%) made a big move that brought its stock to its best levels since February, and based on the news, that could prove to be just the beginning of a more extensive move come Monday.

The other shoe drops

Shares of Affirm Holdings had a quiet day during the regular session, falling 3%. But the stock leapt higher by more than 40% as of 5 p.m. EDT, and investors have Amazon (AMZN -3.03%) to thank for that.

Affirm announced that it would soon make the company's buy now, pay later flexible payment solution available to Amazon customers at checkout. The two companies are already offering the service on a test basis to select customers. A broader expansion of the service should come over the next several months.

Person holding laptop and smartphone while seated near a kitchen.

Image source: Getty Images.

Specifically, Amazon customers spending $50 or more will now have the option to break up those payments into multiple monthly installments. Affirm was careful to make clear that Amazon customers would see the total amount they'd pay under the installment agreement up front, and they'll never pay more than what they agree to at checkout.

Consistent with Affirm's mission to "deliver honest financial products that improve lives," the service won't involve any late fees or hidden charges. Affirm's payment network seeks to be based on trust, transparency, and putting consumers first. That said, Affirm will limit its potential long-term losses by retaining the right to refuse future arrangements for customers who take advantage of the installment payment specialist's generosity.

No full buyout?

The Affirm press release made no mention of any deeper relationship with Amazon. That might have come as a surprise to some investors, especially in the wake of Square's (SQ -2.91%) recent $29 billion acquisition bid for Australian buy now, pay later giant Afterpay. In the wake of Square's move, many had thought that Affirm might well become the next target.

That said, it wasn't entirely clear at the time whether a company the size of Amazon would really need to partner with Affirm. Developing its own solution arguably wouldn't have been all that difficult. Now that it has turned to Affirm, however, the natural follow-up question is why Amazon didn't just make a bid for Affirm.

The answer might well be very simple: Amazon wants to add a service to make things more convenient for customers, but it doesn't want to take responsibility for that service. Collaborating with Affirm independently avoids a host of complications involved in a buyout. It also avoids additional antitrust concerns of the sort Amazon has to deal with anytime it contemplates an acquisition.

The Amazon deal apparently leaves the field open for another company to seek to acquire Affirm. If that happens, the would-be acquirer will have to pay a whole lot more now than it would have last week.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Dan Caplinger owns shares of Amazon. The Motley Fool owns shares of and recommends Affirm Holdings, Inc., Amazon, and Square. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

Stocks Mentioned

Affirm Stock Quote
Affirm
AFRM
$11.96 (-7.96%) $-1.03
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$33,947.10 (%)
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,941.26 (-1.44%) $-57.58
Amazon.com Stock Quote
Amazon.com
AMZN
$88.25 (-3.03%) $-2.76
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$11,239.94 (%)
Block Stock Quote
Block
SQ
$61.30 (-2.91%) $-1.84

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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