Market News

Will the Holiday Season Momentum Boost BNPL Stocks?

Shares of Buy Now Pay Later (BNPL) stocks including PayPal Holdings (PYPL), Block (SQ), and Affirm Holdings (AFRM) have seen some substantial drawdowns this past year, plunging by more than 60% each for PYPL and SQ while AFRM is currently hovering near a 52-week low as the stock has lost more than 90% in value in a year.

There have been multiple reasons for this drawdown. One of the major reasons for this downslide has been the Fed’s tightening monetary stance with the hike in interest rates.

The rise in interest rates has meant that borrowing and funding costs for consumers and fintech alike are higher. To add to the woes of fintech firms, there also have been calls for more oversight of these companies from the Consumer Financial Protection Bureau.

Let us look at these BNPL stocks in slightly more detail.

PayPal Facing Multiple Headwinds

PayPal is facing rising competition from other fintech firms that have jumped into the digital wallet space with Apple’s (NASDAQ:AAPL) aggressive push to expand its Wallet and PoS (Point of Sale) capabilities. However, the Black Friday sale proved to be a win for PYPL as a recent survey on Black Friday shopping by Wedbush indicated.

Top-rated Wedbush analyst Moshe Katri pointed out that this survey showed that PayPal continued to dominate as a form of payment. PYPL and Venmo together accounted for 34.9% of Black Friday online payment services.

Katri is upbeat about the stock with a Buy rating.

However, the online payments company’s bleak FY22 guidance has left investors disappointed with the stock down by more than 6% in the past month.

But Wall Street analysts continue to be bullish about the stock with a Strong Buy consensus rating based on 21 Buys and seven Holds.

Block Could Prove to be Resilient

Block’s payments business is increasingly under pressure due to a weakening in consumer spending following higher inflation. However, the recent Black Friday sales proved to be an exception as SQ’s Afterpay saw 61 million transactions over this weekend.

Block’s Cash App had significant momentum in Q3, with gross profits surging to $774 million, a jump of 51% year-over-year. Weakness in Bitcoin (BTC-USD) continued to weigh down the results, but even with macro headwinds, Cash App’s resilience is respectable thus far.

Deutsche Bank analyst Bryan Keane remains confident that SQ will be on a positive trajectory heading into FY23 as the company looks at expanding its margins and focuses more on controlling its spending.

The analyst has a Buy rating on the stock.

The rest of the analysts on Wall Street are cautiously optimistic about the stock with a Moderate Buy consensus rating based on 21 Buys, six Holds, and one Sell.

Affirm Does Not Affirm Investors’ Faith

Affirm is another BNPL player that has seen a substantial erosion in value amid tough macroeconomic conditions and its weak outlook for FY23 has not helped matters.

It now expects revenue to be between $1.60 billion and $1.68 billion in FY23 versus its prior forecast in the range of $1.63 billion to $1.73 billion. This lowered forecast has been a result of its largest partner, Peloton Interactive (PTON)  facing lower demand for exercise bikes as people return to normal lives post-pandemic.

The company’s fiscal Q1 numbers were a mixed bag with the impact continuing from the Peloton debacle.

Wall Street analysts, however, are cautiously optimistic about AFRM stock with a Moderate Buy consensus rating based on eight Buys, six Holds, and three Sells.

Conclusion

Barring Affirm, it seems PYPL and SQ are in a better position to face macroeconomic headwinds.

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