Affirm (NASDAQ:AFRM), a provider of "buy now, pay later" (BNPL) services, has been a red-hot fintech stock this year. It went public in January at $49 per share, opened at $90.90 on the first day, and currently trades at nearly $120, which gives it a market cap of nearly $30 billion. However, Affirm is still a lot smaller than Square (NYSE:SQ) (soon to be named Block, effective Dec. 10), which is valued at nearly $90 billion, or PayPal (NASDAQ:PYPL), which has a market cap of $210 billion. Both of those digital payment companies have expanded into the BNPL market over the past year.
Could Affirm evolve into a much larger company over the next decade? Let's examine its business, its potential growth rates, and long-term valuations to see if it has a shot at becoming a trillion-dollar company by 2030.
Can Affirm disrupt traditional credit card companies?
Affirm's primary goal is to disrupt traditional credit card companies. Its BNPL service enables customers to split larger purchases into smaller payments without hidden or late fees, then calculates the interest payments with a fixed dollar amount instead of compounding 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 latest quarter. The company has a growing list of partners that includes Amazon, Walmart, Target, Shopify, and American Airlines.
Amazon's partnership with Affirm and the e-commerce giant's recent decision to ban Visa payments in the U.K. highlight that disruptive potential. PayPal also rolled out its own BNPL service over the past year and accelerated that effort by acquiring the Japanese BNPL platform Paidy. Square agreed to buy the Australian BNPL platform Afterpay (ASX:APT) earlier this year.
Affirm and those other BNPL platforms probably won't ever render credit cards obsolete. But, they could carve out a high-growth niche and force credit card providers and their issuing banks to reduce their fees and interest rates.
The BNPL market's growth potential
The global BNPL market was valued at $4.1 billion in 2020, according to Grand View Research, and could expand at a compound annual growth rate (CAGR) of 22.4% from 2021 to 2028. The research firm believes that growth will be primarily driven by Gen Z and Millennial consumers, especially those who have lower credit scores and can't qualify for better credit cards with lower interest rates.
If Affirm merely matches the market's projected growth rate, its revenue could rise from $870.5 million in fiscal 2021 to nearly $3.6 billion in fiscal 2028. If its revenue rises another 22% annually over the following two years, it could generate nearly $5.4 billion in revenue in fiscal 2030.
Affirm is currently valued at 38 times last year's sales. If it can maintain that high price-to-sales ratio over the next ten years and matches Grand View's market forecasts, it might be worth over $200 billion by the end of 2030. However, Affirm grew its revenue at a CAGR of 81.5% between fiscal 2019 and fiscal 2021. Therefore, its early-mover advantage and big partnerships could enable it to grow faster than the entire BNPL market.
Analysts already expect Affirm's revenue to rise more than 40% this year and next year. If Affirm grows at a CAGR of 35% between 2021 and 2030, its revenue could hit $13 billion by that final year. If its stock is still trading at 38 times sales by then, Affirm could be worth nearly $500 billion by 2030.
Although, that's a best-case scenario that doesn't factor in the competitive threats from other BNPL platforms, a potential recession, or other macroeconomic challenges occurring over the next nine years. Therefore, Affirm might generate big multi-bagger gains over the next decade, but its chances of joining the 12-zero club on its own are nearly non-existent.
Look beyond the market caps
Instead of wondering if Affirm will ever become a trillion-dollar stock, investors should focus on its near- to mid-term challenges. The company still has customer concentration issues, it's deeply unprofitable, and it will face a lot of competition as the BNPL market expands. Affirm needs to overcome all these issues before we assume the company will even be around in 2030.