Affirm (AFRM) Explodes 37% on a BNPL Deal with Amazon (AMZN), Survey Shows Almost 50% Shoppers Plan to Use New Offering; Analysts Positive and Raise PTs

Shares of Affirm (NASDAQ: AFRM) are up over 37% in pre-open Monday after the company announced a partnership with Amazon (NASDAQ: AMZN).

Selected Amazon customers can now split the total cost of their purchase of $50 or more into monthly installments.

“By partnering with Amazon we’re bringing the transparency, predictability and affordability that Affirm provides today to the millions of people who shop on Amazon.com in the U.S.,” said Eric Morse, Senior Vice President of Sales at Affirm.

“Offering Affirm’s alternative to credit cards also delivers more of the payment choice and flexibility consumers on Amazon want.”

Morgan Stanley analyst James Faucette raised the price target to $120.00 per share from $73.00 on the Overweight-rated stock.

The analyst argues that customer growth is now likely to ‘meaningfully accelerate.’

“We think expanded available credit to customers should be attractive to Amazon, while we expect that the offer will be most attractive to consumers who lack credit,” Faucette writes in a client note.

“We expect that Amazon’s ~150M US Prime customers will help accelerate growth, and our new estimates anticipate that Amazon will help accelerate Affirm’s number of active US consumers to ~18M by the end of 2023(vs our previous estimate of 11.4M). At the same time, we expect that consumers will ramp their usage of Affirm to ~0.9% of Amazon’s US GMV by the end of 2023. For now, we don’t expect Amazon to offer 0% on consumer purchases, as such we expect the MDR to be quite low (probably ~2.5%), and given that most purchases are likely to be small and of short duration (less than 3 months), we expect Amazon will directly add ~$296M in net revenue for FY2023,” the analyst adds.

Morgan Stanley expects the incremental profits to be reinvested, in line with the previous forecasts that AFRM will finish FY23 about breakeven.

Mizuho’s Dan Dolev sees 20% to 30% GMV upside for AFRM following a partnership with Amazon.

A survey conducted by Mizuho shows 50% of Amazon shoppers are likely to use AFRM's BNPL offering.

“Our proprietary survey of over 200 Amazon shoppers suggests that nearly 50% of respondents are either 'very likely' (22%) or 'somewhat likely' (26%) to use BNPL financing on Amazon. Not surprisingly, the likelihood is higher amongst AFRM customers, where 78% noted they are either 'very likely' or 'somewhat likely' to use BNPL on Amazon. The survey also indicates significant opportunity for AFRM to expand its customer base. According to the survey, only 18% of US Amazon shoppers are also customers of AFRM,” Dolev wrote in a note sent to clients.

Using data from the survey, Mizuho projects that the AMZN partnership in the US could yield 20-30% potential upside to 2023 GMV and 5-10% potential upside to sales.

“Our survey suggests that 46% of purchases are done with debit. We believe these are more likely to convert to BNPL than purchases using credit. Survey respondents commented that about 53% of their purchases have an average order value (AOV) of $50 or over. As per the press release (see link), $50 AOV will be the threshold to use BNPL on AMZN initially. Roughly 22% of survey respondents noted that they are 'very likely' to use BNPL. Another 26% noted they are 'somewhat likely'. For conservatism, we only take into account those who are 'very likely' to use BNPL, assuming they use it 25% of the time. Overall, this results in US GMV of $3bn with potential GMV of $1.3bn if the program is expanded internationally. This marks about 20-30% potential upside to our prior 2023 GMV estimates,” Dolev adds.

A new price target for AFRM is $110.00 per share from the prior $76.00.

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