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“If Square paid $29 billion for Afterpay and Affirm Holdings is very similar, then Affirm should be worth at least $100 a share based on the Square-Afterpay deal” quoted Will Meade on twitter, a former hedge fund manager.

Valuation

Affirms Holdings is a buy-now-pay-later company (BNPL), as is Afterpay which was acquired for $29B by Square Inc (NYSE:SQ). Affirm Holdings has a market cap of $17.5B and a share price of $65.95 (as at close Friday’s market close). Going off the valuation that was paid for Afterpay, that should make the share price just under $110. But two companies being in the same sector does not equate to equal valuations, so let’s take a look.

Afterpay and Affirm are two of the BNPL companies in the US. Affirm had previously held dominance in terms of downloads until recently. In Q4 2018, Affirm had 78% of all downloads and Afterpay had 17%. The gap tightened through 2019 and 2020, and as reported for Q1 2021, Affirm have 16%, Afterpay have 26% and Klarna have 34%.

Let’s look at both companies’ latest half-year financial reports (Affirm Oct 2020-Mar 2021 and Afterpay Jul 2020-Dec 2020)

  • Revenue: Affirm $434.7 vs Afterpay $417M
  • Users: Affirm 5.4M vs Afterpay 7.3M
  • Net Loss: Affirm ($278.8M*) vs Afterpay ($79.2M)
  • Cash and Cash Equivalents: Affirm $1.6B vs Afterpay $458M

*Increased operating expenses in ‘General and administrative (367% increase)’, ‘Technology and data analytics (193% increase)’ and “Sales and marketing (709% increase)’ were the main contributor to the losses.

The companies both do well in terms of revenue, putting up similar numbers. Although the net loss for Affirm is greater, the balance sheet looks healthy with over 3 times more cash on hand.

Apple partnership

Apple and Affirm recently announced a partnership that will see Apple make use of the BNPL scheme in Canada. Apple do have their own “Apple Card” which offers a payment scheme, but this is not available worldwide. This is a big partnership, which should act as a sign of confidence and could lead to additional corporate partnerships in new regional markets.

Who could buy Affirm Holdings?

There is a view that Shopify (NYSE:SHOP) could buyout Affirm Holdings. They already have Affirm integrated into their platform, as well as owning a 7.6% stake in the company. A BNPL option increases sales which gives merchants more reason to use the service. This reason could put Shopify in touch with all of the 5.4M users that Affirm has.

Technicals

Chart provided by TradingView

Affirm has been in consolidation since early March. A daily close above $70 would bring attention to the stock for a breakout. $80 would be my target if it did break out. I can also see this reaching $100 by the end of the year.

My opinion

The demand for shoppers to pay later is ever increasing and the growth of this company will not be slowing down. They have good cash on hand and great revenue increases within recent quarters. Along side good fundamentals, I like a chart that is ready for a move in a shorter time period so I can make best use of my capital. For me, Affirm looks right for this.

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