Morgan Stanley has upgraded Affirm Holdings Co., Ltd. AFRMis a payment network operator in the United States and Canada, and the company has begun implementing strategies to attract high-income users.
The analyst has previously expressed concerns about Affirm’s growing customer base, noting that it is becoming increasingly skewed towards low-income individuals with weak credit, which could hinder the company’s long-term growth. I was doing it.
However, with the integration of Affirm and Apple Pay, its reach has expanded to include younger and higher income groups. Morgan Stanley expects the partnership to generate an additional $1.94 billion in deal value by fiscal 2026, exceeding the initial estimate of $1.0 billion to $1.5 billion.
The analyst upgraded Affirm shares from underweight to equal weight and raised his price target from $20 to $37.
Morgan Stanley observes that high-income consumers are often the most sensitive to promotional rates and is encouraged by Affirm’s efforts to strengthen its direct sales agreements with manufacturers and distributors. .
Intensifying efforts to scale manufacturers’ purchases and demonstrate Affirm’s ability to improve conversion rates, analysts expect promotional financing offers to increase throughout FY25 and become more positive about engagement with affluent consumers. We anticipate that this will lead to a positive outlook.
Morgan Stanley believes that expanding the availability of lower promotional rate prices could further increase Affirm’s appeal to high-income consumers, an important complement to improved distribution and promotion strategies. It has been pointed out that this is a key element.
Recently, management discussed leveraging the lower cost of capital to offer various promotional rates above 0%, such as 1.99% and 4.99%.
Morgan Stanley notes that more young consumers now own credit cards than five years ago, and that Affirm, a buy now, pay later (BNPL) provider, has become more popular than PayPal, Apple and others. It points out that it is perceived to be less reliable than existing players.
However, the company emphasizes that increased brand awareness could narrow this trust gap and reduce incumbents’ grip on young consumers.
Price action: AFRM stock is up 4.34% to $42.94 at last check on Wednesday.
Image: Shutterstock by PopTika
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