© Reuters. BNPL Regulation Could Impact Affirm (AFRM) Consumer Adoption, Says Analyst

By Sam Boughedda

Affirm Holdings (NASDAQ:) was initiated with a Neutral rating and a $22 price target by Goldman Sachs analyst Michael Ng on Monday.

Affirm, a leading US Buy Now, Pay Later company, has the “widest breadth” in product offering, according to the analyst, while it also has a “track record of enterprise merchant integration (e.g., Amazon (NASDAQ:), Shopify (NYSE:), Walmart (NYSE:)), with robust underwriting processes and disclosures.”

Buy now pay later firms have come under scrutiny by US regulatory bodies.

However, Ng said Affirm should be a key driver and beneficiary of US BNPL industry growth, which he states was at 4% penetration of US e-commerce in 2021. Goldman Sachs estimates it should rise to 9% penetration by 2025 (>$100 bn GMV).

“That said, AFRM’s transaction margins likely will be pressured by increased provision for credit losses & funding costs against the backdrop of rising interest rates and weakening consumer credit,” wrote Ng. “Gross take-rates may be pressured by a mix shift toward larger enterprise merchants and shorter duration products (though we recognize this should be a tailwind to GMV), as well as ongoing competition.”

While the analyst believes Affirm’s “stated commitment to disclosures and underwriting puts it in a stronger position among its key competitors,” he added that the evolving US buy now, pay later regulatory landscape means the risk of potential regulation that could reduce the pace of consumer and merchant adoption.

Affirm shares have tumbled 7% Monday.

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