Needham analyst Kyle Peterson initiated coverage on Affirm Holdings Inc
Affirm is a leading provider of "buy now, pay later" (BNPL) services, with a broad range of product offerings and notable partnerships, most notably with Amazon.Com Inc
While Peterson flagged Affirm's diverse product suite and expects the market for BNPL services to generate healthy growth, he rated the stock Hold due to a combination of valuation (~32x his fiscal 2026 EPS estimate), elevated stock-based compensation expense (46% of LTM revenue), and a growing mix share of interest and other lending-related income (~65% of revenue), which he expect to make significant multiple expansion challenging.
Peterson could become more constructive on the shares in case of a pull-back or if merchant and card network revenue growth becomes a larger piece of the story.
The analyst noted Affirm as a long-term winner in the domestic BNPL space, a large and growing market with a projected 20%+ CAGR over the next 5-10 years based on industry market research reports.
In addition, there are notable opportunities for Affirm to scale internationally, especially given the success other BNPL providers, such as Klarna (private), have had in international markets, per the analyst.
Peterson noted that Affirm's technology-related revenue (merchant and card network) should be valued at a higher multiple than its lending-related revenue, given the absence of credit risk and greater capital efficiency.
However, he added that much of Affirm's growth has been due to outsized lending-related revenue (interest income, gain on sale, and servicing) in recent quarters.
Lending-related income is ~65% of revenue today, which he noted will cause investors to scrutinize Affirm's profitability-based valuation metrics increasingly.
Stock-based compensation equaled 46% of Affirm's revenue in calendar year 2023, which Peterson estimates is the highest among a peer group of digital lending and FinTech companies.
While Peterson noted stock-based comp as a cash-efficient way to hire and retain quality employees, he expects this to be a drag on the valuation, especially since the related dilution is likely to be ongoing, with Affirm establishing an annual dilution target of
