Affirm Holdings, Inc. AFRM and PayPal Holdings, Inc. PYPL are two standout names in the fast-paced world of fintech, or financial technology. Both companies are playing key roles in reshaping how consumers make payments, offering innovative digital solutions across transactions, lending, and more. PayPal, a global heavyweight in online payments, continues to expand its ecosystem, while Affirm is quickly establishing itself as a leader in the rapidly growing buy now, pay later (BNPL) space, offering flexible installment plans designed for modern consumers.

With fintech stocks under pressure amid changing macroeconomic conditions, the big question for investors is: Which of these two fintech companies offers the better investment opportunity now? Let’s dive deep and closely compare the fundamentals of both stocks to determine which one is the smarter play at this moment.

The Case for Affirm

Affirm has emerged as a major player in the BNPL space, one of the fastest-growing segments in fintech. Its core offering enables consumers to pay over time with transparent terms and zero hidden fees, features that resonate particularly well with younger, tech-savvy customers. Affirm’s momentum is being driven by strategic integrations with major retailers such as StockX, REVOLVE and Shopify.

What sets Affirm apart is its strong connection with millennials and Gen Z, demographics that increasingly favor flexible payment options over traditional credit. The company boasts a growing base of 21 million active consumers and 337,000 active merchants, a clear indication of its expanding ecosystem. Affirm's business model is also highly scalable. Beyond everyday purchases, it offers financing for big-ticket items like travel and home improvement, positioning itself for long-term growth across multiple verticals.

But Affirm isn’t stopping at BNPL. The company is steadily evolving into a broader financial services platform. It is developing debit products and exploring banking integrations to embed its services into consumers’ daily spending, whether for large purchases or routine expenses. This diversification strategy not only expands Affirm’s addressable market but also creates new revenue streams. The company achieved GAAP profitability in the last reported quarter and aims to maintain profitability starting in the fourth quarter of fiscal 2025.

While the BNPL space remains competitive, with heavyweights like Klarna and PayPal in the mix, Affirm continues to innovate. In early April, it expanded its partnership with Shopify, launching Shop Pay Installments in Canada, with plans to enter the U.K. market next. Affirm is also eyeing international growth, with launches planned in Australia and Western Europe, where PayPal already has a wide presence.

AFRM exited the fiscal second quarter with cash and cash equivalents of $1.2 billion, which increased 18.5% from the fiscal 2024-end figure. Funding debt amounted to $2.2 billion, which is understandable for such a growing company. AFRM generated $312 million of net cash from operations during the December quarter, significantly up from $74.3 million in the prior-year quarter.

The Case for PayPal

PayPal, on the other hand, is a well-established giant in the digital payment space. With 434 million active users at 2024-end, PayPal has a vast and loyal customer base, making it one of the most trusted names in online payments. Its ecosystem includes not only PayPal itself but also Venmo, a popular app for peer-to-peer payments, and a growing presence in cryptocurrency trading, making PayPal a strong contender in the broader fintech landscape.

Despite its scale and market dominance, PayPal’s growth has slowed in recent years. It is facing significant pressure from competition from other digital payment platforms, like Square and even Affirm, which is intensifying. PayPal has been expanding into new markets and services, such as lending and cryptocurrency, and these segments have much room for growth. While PayPal relies on more traditional, less adaptive credit models, Affirm’s underwriting is more disciplined and data-driven, using real-time, transaction-level insights to assess risk.

Furthermore, PayPal faces some challenges in terms of regulatory scrutiny and pricing pressures from larger merchants who may look for alternative payment processors to lower transaction costs. While PayPal’s business model is robust, its growth prospects are not as immediately exciting as Affirm’s, particularly as the latter taps into the booming BNPL market.

PayPal’s cash and cash equivalents plunged nearly 28% in 2024 to $6.6 billion, while long-term debt rose more than 2% to $9.9 billion. Nevertheless, its 2024 cash flow rose to $7.5 billion from $4.8 billion a year ago.

How Do Zacks Estimates Compare for AFRM & PYPL?

When it comes to analysts' expectations, Affirm holds an edge in terms of growth potential. The Zacks Consensus Estimate for AFRM’s fiscal 2025 sales and EPS implies a year-over-year improvement of 36.9% and 96.4%, respectively. The EPS estimates have been trending northward over the past month. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

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In contrast, PayPal’s growth is more modest, as analysts forecast slower earnings growth. The consensus estimate for PayPal’s 2025 sales and EPS implies a year-over-year rise of only 3.7% and 7.5%, respectively. The EPS estimates have been trending southward over the past month.

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Price Performance Comparison

Over the past year, Affirm stock has experienced significant swings, both up and down. PayPal, on the other hand, has been more stable, reflecting its mature business. However, AFRM shares gained 30.8% while PYPL witnessed a 3% decline. During this time, the S&P 500 Index grew 8.1%. The volatility seen in Affirm's stock could be seen as an opportunity for risk-tolerant investors looking to capitalize on its potential upside. PayPal, while relatively steady, may not offer the same growth opportunities in the short term.

Price Performance – AFRM, PYPL & S&P 500

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Valuation: AFRM vs. PYPL

Affirm is currently trading at a higher price-to-sales (P/S) ratio compared to PayPal, reflecting the market’s optimism about its growth prospects. AFRM is trading at 3.43X P/S, higher than PYPL’s 1.77X. While both stocks have their merits, Affirm’s higher risk may be balanced by its higher potential reward, especially if it can continue to expand its partnerships and market share. PayPal’s valuation may offer a safer bet for more conservative investors, but it’s likely to have a lower ceiling for growth compared to Affirm.

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Last Words

In conclusion, while PayPal offers stability and a proven track record, Affirm has the edge in terms of growth potential, particularly due to its growing dominance in the rapidly expanding BNPL sector. Affirm’s ability to tap into a younger, tech-savvy demographic and form strategic partnerships with major retailers sets it apart as a more promising investment at the moment. It currently sports a Zacks Rank #1 (Strong Buy). Meanwhile, PayPal has a Zacks Rank #3 (Hold) now. You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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