By Mackenzie Tatananni

Affirm Holdings is positioned to continue gaining share of the market for buy-now, pay-later loans, but its growth faces considerable headwinds, Seaport Research Partners says.

Shares rose 5.1% to $52.49 as analyst Jeff Cantwell initiated coverage on the stock, rating it at Neutral. The stock is down 14% this year, while the Russell 2000 index of small-cap companies has fallen 6%.

Cantwell said the company is a high-quality provider of buy-now, pay- later services, arguing that the stock has "plenty of greenfield ahead of it." The analyst noted that Affirm recently raised its financial forecasts for the fiscal year. Partnerships with Amazon.com and Shopify in the U.S., and Adyen in the U.K., will only stoke more growth, Cantwell added.

Shares tumbled last week after Klarna said it would be the sole provider of buy-now, pay-later loans for Walmart, a setback for Affirm, which had worked with the retailer for six years.

The stock already appears to be recovering ground. Cantwell believes it could rebound further, saying he thought the initial reaction to the news was excessive.

Nevertheless, Affirm has bigger hurdles to clear due to its history of reporting quarterly losses. The company seemed set to continue its losing streak this year, but posted a surprise profit of 23 cents in the second fiscal quarter, up from a loss of 54 cents a year earlier.

"We think it is going to be challenging for Affirm to generate positive GAAP operating income on a sustainable basis, as the company has stated it will do beginning in the fiscal fourth-quarter of this year," Cantwell wrote.

The economic environment is "in the process of changing, perhaps materially so, and our view is that consumer spend starts to moderate from here," Cantwell wrote. He argued that slower consumer spending will impede growth in Affirm's gross merchandise volume, or the dollar amount of all transactions on its platform, net of refunds, during a given period.

The fintech company has a multipronged business model. Affirm earns commissions from merchants for facilitating transactions, charges interest on loans to consumers, and earns fees when customers use its virtual card.

"Meanwhile, we expect the credit cycle will continue to mature -- this will impact provision expense, perhaps to a greater extent than the Street currently anticipates," Cantwell added.

The analyst lauded Affirm on other fronts including its positioning in the BNPL space and potential for continuing gains in market share. Management's progress in making Affirm profitable is another bright point, the analyst noted. But "the bottom line here is we ultimately expect to see the shares trading fairly rangebound" over the next 12 months, he said.

Wall Street is split on the stock. Of 26 analysts polled by FactSet, 15 rate Affirm at Buy or the equivalent, while 11 rate it at Hold.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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March 24, 2025 13:02 ET (17:02 GMT)

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