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Affirm (AFRM) Stock Jumps +20% from Confirmed Partnership with Target (TGT)

Affirm announced another ground breaking partnership with a massive retailer.

06 Oct

Woohoo! What a great day it’s been for us Affirm shareholders.

Sorry in advance for this post being so long. A lot of the content I reference today is old Patreon content - which I know a lot of people reading don’t have access to. Instead of hyperlinking out to a dead webpage, I will republish / refresh the content itself.

In this post, I’ll be:

  • Covering Affirm’s partnership with Target (TGT)

  • Highlighting their recent accomplishments

  • Giving my updated thoughts on the company

📈 Affirm’s +100% Stock Run in 2 Months:

If you’ve been keeping up with my work for several months now, you’ll know I’ve been excited about Affirm for quite some time.

First having pitched the company to my Patreon community pre-IPO, then creating this TikTok about the company once they made their market debut, and finally sharing why I thought Affirm stock was trading at “pounding the table” buy prices when priced at $67 / share in early-August.

It’s been such a pleasure watching this company excel over the last 2 months or so.

From their non-exclusive partnership with Amazon that sent the stock +50% higher almost instantly:

To their incredible second quarter earnings results, proving they deserved to again trade higher than $110 / share: 

To their incredible Investor Day, which came with delightful surprises:

To their now recently announced partnership with Target, sending their stock up another +20% to $135 / share:

Affirm is on a winning streak, and in my opinion, it is no longer “Will this company be successful?” but “Just how successful will they become in the coming years?”

👀 Looking Back:

But we knew this was coming.

I published an entire post a month ago to my Patreon labeled “Deep Affirm Reflection” that went into immense detail about my thoughts on where the company (and their stock) was headed in the coming quarters.

Below are some call outs in case you missed it.

Over the last few quarters, we've been modeling Affirm's growth to be somewhere around +90%, but given Peloton's recall and slow down as well as uncertainty surrounding COVID restrictions directly related to Peloton's business it was a dice roll if Affirm was going to report +90% revenue growth.

The company reported revenue of $261 million, which was +71% growth year over year (YoY). Not our +90%, but certainly nothing to scoff at, considering the company had been guiding to revenue of only $215 million, a $261 million reporting was massive in the eyes of Wall Street and discouraged investors. 

We knew the company was going to grow faster because we understand their total addressable market (TAM) and their ecosystem - companies sandbag their guidance all the time, and it makes sense. 

It's also so nice to see Affirm’s gross merchandise volume growing while omitting Amazon and Apple Canada from the results or guidance. Their exclusive partnership with Shopify has proven to be an insane catalyst for this company. 

Affirm reported strong +97% growth in active customers in their ecosystem (7.7 million) with a lot of this growth stemming from Shopify. You now sprinkle in the mix a Debit+ offering and undefeated BNPL services and this company turns into a "Credit Karma essentiality" of types with tens of millions of users before the end of the decade. 

It's weird to me to begin thinking through Affirm's competition and how if Affirm can pull off what they plan to with their strategic partners and service offerings.. competition concerns quickly become anti-trust concerns. 

To quote their most recent earnings call..

“To our host of integrated partnerships with the largest merchants in e-commerce and brick-and-mortar retail, Affirm will be offered as a payment option for merchants representing more than half of U.S. e-commerce, which we believe will ultimately enable us to demonstrate Affirm's powerful value proposition to millions of new to Affirm consumers, and grow active consumers meaningfully in fiscal year ‘22.”

Which to me is absolutely bonkers.

Then finally, we mentioned that their enterprise pipeline is robust:

Before I end my more detailed thoughts as I've digested and analyzed the numbers and quotes, I wanted to share this quote from their recent earnings call about the company's enterprise pipeline - that is the "Amazons" and "Walmarts" and "Shopifys" of the online world. 

"In terms of enterprise pipeline, I don’t want to toot my own horn too much here, but we have become sort of the undisputed provider of the service to the enterprises, because we are really that good. We think that any enterprise thinking about offering buy now pay later, or pay monthly looks at Affirm as the gold standard. And we intend to provide those services to people like them.

Always a terrible idea to pre-announce deals or pre-announce deals that aren’t closed, shouldn't really be coming to the pipeline. But [we] certainly have extreme conviction that what we built resonates with folks that care about technology, scalability, availability, delivery of full suite of products, or the postal port solution. So in essence, I think the market is meeting us where we are with our suite of services."

I'm not saying these people have a pipeline of every ecommerce player in the game waiting to leverage their BNPL checkout features, but by the way this was articulated - it seems to me that we'll see another Amazon or Shopify-like deal announced in the coming 6-12 months. 

And they weren’t lying.

“Through our partnerships with Sezzle and Affirm, we’re offering guests additional flexible payment options that meet even more of their needs no matter how they choose to shop," Gemma Kubat, Target’s president of financial and retail services, told USA TODAY.

I’d argue a non-exclusive Target partnership is a pretty big deal, and that Affirm’s management team’s “extreme conviction” that the market will meet them where they are considering they’ve built a BNPL service that resonates with folks who care about technology, scalability, availability, delivery of full suite of products - was a fair assumption.

🤞 Affirm’s Stock Price (Hopefully):

From a price target perspective, the most bullish analysts on Wall Street are aiming for Affirm’s stock to begin approaching the $140-150 / share range (Barclays and Mizuho) within the next 12 months - but it seems like we’ll hit those numbers sooner than later.

The average price target is hovering around $115 / share - which at the current $135 / share could suggest Affirm’s stock is trading on the frothy side of the scale.

Bank of America suggests near term catalysts to push the stock price higher include:

  • Debit+ card (Split Pay)

  • Adaptive checkout

  • Brand-sponsored promotions

  • New browser extension

  • Cashback and rewards

  • Crypto trading

Bank of America has a $120 / share price target on the company, assuming they should be trading around ~20X their 2023 revenue. BofA has their 2023 revenue coming in around $1.5 billion, which to me seems low.

Mizuho, an Affirm bull, has the company’s 2023 revenue coming in north of $1.7 billion - which I still think is low. I don’t see why this company won’t be growing revenue +75% annually for the next 2 years given the above mentioned catalysts, putting them much closer to $2.5 billion.

Regardless - Affirm is strategically positioning themselves to become the absolute authority in the Buy Now, Pay Later space.

I have a position - and I plan to add to it until it makes up ~4% of my total portfolio.

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Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

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