Holiday Spending Boom Ahead: 3 BNPL Stocks Poised for Gains

Key Points

• Affirm Holdings is the pioneer in buy-now-pay-later (BNPL) platforms heading into the holiday shopping season, as lower interest rates could stimulate more BNPL transaction volume.
• Afterpay is a competing buy-now-pay-later (BNPL) service owned by Block Inc. and integrated into its Cash App, which is accessible by 57 million active users.
• Sezzle offers both online and in-store BNPL options with its VISA Virtual card available on its mobile app.

As the holiday season approaches, consumers prepare for another hit to their pocketbooks with their annual holiday shopping. Inflation and high interest rates have caused consumers to tighten their spending habits in the consumer discretionary sector. The holiday shopping season is when most retailers have the opportunity to get in the black. It's also the busiest time of year for buy-now-pay-later (BNPL) services, which continue to grow in usage. Here are 3 stocks to consider buying now to profit from the upcoming holiday spending season.

Affirm: The Pioneer in BNPL and Growth Monster

As the pioneer in BNPL, Affirm Holdings Inc. NASDAQ: AFRM continues to experience hypergrowth. It is also partnered with Amazon.com Inc. NASDAQ: AMZN, Apple Inc. NASDAQ: AAPL, Shopify Inc. NYSE: SHOP, Target Co. NYSE: TGT, and Walmart Inc. NYSE: WMT to offer their BNPL services to the retailer's customers. The company is receiving accolades and upgrades this holiday season as it has become apparent this is when they see the most business. The business model of BNPL is simple and provides a win-win opportunity. Consumers can make purchases taking microloans payable in preset bi-weekly payments, usually interest-free. Merchants are able to complete sales that otherwise may not have occurred. Affirm takes its fee from merchants to facilitate the transaction. Affirm also offers monthly payment options, which can incur interest for up to four years (60 months).

GAAP Profitability Is Becoming More of a Reality

Affirm has been losing money every quarter since its inception. However, revenue has grown by double-digits while losses continue to shrink. Its CEO, Max Levchin, former co-founder of PayPal Holdings Inc. NASDAQ: PYPL, stated in its fiscal fourth quarter of 2024 shareholder letter that the company is on target to become GAAP profitable by the end of the fiscal full year 2025.

It's just a matter of scale and time at this point. The more revenue they generate, the less money they lose. Affirm lost 14 cents per share in the first Q4 of 2024, which still beat consensus estimates by 34 cents. Revenue grew 48% YoY to $659.2 million, besting consensus estimates by over $55 million. Affirm raised its fiscal Q1 2025 revenue guidance higher to $640 million to $670 million, which crushes the $625.04 million consensus estimates.

Analysts Upgrade Ahead of the Holidays

This holiday season should set up for another record-breaking quarter. Analysts certainly agree as they raised their ratings and price targets. On Oct. 8, 2024, BIG upgraded Affirm stock to Buy from Neutral, which simultaneously downgraded shares of credit card network American Express Co. NYSE: AXP to Sell. Morgan Stanley upgraded Affirm to Equal Weight from Underweight, as it sees higher income spenders also joining the platform to avoid the high interest rates from credit card issuers. Wells Fargo upgraded Affirm shares to Overweight with a $52 price target.

Afterpay: Pay-in-4 Model Is Simple

Block Inc. NYSE: SQ acquired BNPL platform Afterpay for $29 billion on Feb. 1, 2022. The company has since integrated it into its Cash App ecosystem, providing users with BNPL options through Afterpay. Afterpay's model is simple: buy the product and pay for it in four bi-weekly payments. There are no credit checks involved, nor interest rates applied under the four payment option. Afterpay collects a fee from merchants comprised of a base of 30 cents plus 4% to 6% of each transaction. Consumers can also opt for monthly payment plans for purchases over $400 in six to 12 months, but interest rates accrue, ranging between 6.995 to as high as 35.99%. Loan amounts are determined on a case-by-case basis, ranging up to $2,000.

Growth Through the Cash App Ecosystem  

Afterpay has five million users, and that number grows with increasing Cash App users which is at the 57 million mark as of June 2024. Afterpay also has retailer partners like Nordstrom Inc. NYSE: JWN, The Gap Inc. NYSE: GAP and Old Navy offering its services to its customers. While Block is not a pure-play BNPL, you also get multiple ecosystem businesses with the stock which include its legacy Square network and Cash App ecosystem. Afterpay’s gross merchandise volume (GMV) grew 21% YoY to $7.75 billion in Block’s second quarter of 2024.

Sezzle: Shop Online or In-Store Using the Mobile App

Sezzle Inc. NASDAQ: SEZL is a BNPL platform that also allows a pay in 4 installments option with a twist. Users need to pay a 25% downpayment of the purchase price first upfront. It is interest-free under the 4 payment plan paid out over six weeks. It has also partnered with major brands to get exclusive deals from Amazon.com, Walmart, Kohl’s Co. NYSE: KSS and Nike Inc. NYSE: NKE.

Building Up Your Sizzle Payment History

Sezzle users can download the app and set up the Virtual Card to shop online or in-store. Users can choose a brand or product and select the Pay with Sezzle option at checkout. Users can select their payment plan. With Sezzle, the financing is determined on a case-by-case basis, but users who build up a history with the company will usually get more financing. Therefore, there is also a single payment option where a user can opt to purchase the item without using BNPL but through Sezzle to build history. Meanwhile, Sezzle still charges the merchant 30 cents and 6% transaction fees.

Users can use the Sezzle App, which has a Virtual Visa Inc. NYSE: V card to enable in-stop purchases. Users must determine how much they plan to spend and then select the payment schedule and terms to fund the Visa card. After that they are free to spend on in-store items.

Sezzle has over 3.4 million active users and is accepted by more than 45,000 merchants in the United States and Canada.

Sezzle’s Stock Surge May Have Gotten Ahead of Itself

Sezzle shares are up 776% year-to-date (YTD), but the volume is much lighter than the stocks above, averaging less than 100,000 shares. Despite the run-up, shares are only trading at 26.79x forward earnings. The consensus analyst price target among three analysts is $174.00, with the highest target at $185.00.