The surge in online shopping and preference for deferred payments has fostered increasing demand for buy now, pay later (BNPL) services amid the COVID-19 pandemic. According to a survey by DebtHammer.org, nearly 45% of shoppers have recently signed up for at least one buy now, pay later plan, a 41% jump since April 2021.
Rising digital, online payments among different sectors and increasing investments by prominent industry leaders should boost the BNPL market’s growth. The BNPL market is projected to grow at a 21.7% CAGR from $22.86 billion in 2022 to $90.51 billion in 2029.
Given the industry’s solid growth prospects, Wall Street analysts expect fundamentally sound BNPL stocks, PayPal Holdings, Inc. (PYPL), Block, Inc. (SQ) and Affirm Holdings, Inc. (AFRM) to rally significantly in price in the coming months.
PayPal Holdings, Inc. (PYPL)
PYPL functions as a technology platform that enables digital payments on behalf of merchants and consumers worldwide. It provides payment solutions under the PayPal, PayPal Credit, Braintree, Venmo, Xoom, Zettle, Hyperwallet, Honey, and Paidy names. The San Jose, Calif.-based company's payments platform allows consumers to send and receive payments in nearly 200 markets and approximately 100 currencies.
PYPL's net sales increased 13.1% year-over-year to $6.92 billion in the fourth quarter ended December 31, 2021. Its non-GAAP operating income totaled $1.51 billion, while its non-GAAP net income improved 3% year-over-year to $1.32 billion. The company's non-GAAP EPS increased 2.8% from its year-ago value to $1.11.
Analysts expect PYPL's revenue to increase 6.3% year-over-year to $6.41 billion in the first quarter (ending March 2022). The company's EPS is expected to grow 11.6% year-over-year to $1.24 in the third quarter ending Sept. 30, 2022. In addition, the company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has gained 14.3% over the past month.
Among the 37 Wall Street analysts that rated the stock, 26 rated it buy, and 10rated it hold. Closing its last trading session at $117.87, the 12-month median price target of $182.36 indicates a 54.7% potential upside. The price targets range from a low of $107.00 to a high of $245.00.
Block, Inc. (SQ)
Headquartered in San Francisco, California, SQ and its subsidiaries create tools that allow sellers to accept card payments and provide reporting, analytics, and next-day settlement. It provides hardware products, including Magstripe reader, which enables swiped transactions of magnetic stripe cards; Contactless and chip reader that accepts Europay, MasterCard, and Visa (EMV) chip cards.
Recently, SQ and CodeBase, the U.K.'s leading technology start-up incubators, announced a partnership to provide entrepreneurs with access to SQ's payment ecosystem and APIs (Application Programming Interfaces). Under this partnership, Square will assist CodeBase's network of start-ups by providing a series of workshops that will allow entrepreneurs to learn from leaders in the commerce and payments fields.
This month, SQ launched two new products–Square Marketing and Square Loyalty–in Ireland to help businesses grow their sales and engage their customers with just a few clicks. Square Marketing aids businesses efforts to reach customers at the right time and all in one place, whereas Square Loyalty allows businesses to build a loyalty program in minutes by enabling a new way of turning one-time visits into repeat customers.
In the fourth quarter, ended Dec. 31, 2021, SQ's total net revenue increased 29.1% year-over-year to $4.08 billion. Its gross profit grew 47.1% from its year-ago value to $1.18 billion, while its adjusted EBITDA amounted to $184.18 million over the period. The company's cash and cash equivalent stood at $4.44 billion for its fiscal year ending Dec.31, 2021.
The $2.18 consensus EPS estimate for its fiscal year 2023 represents a 66.3% improvement year-over-year. Analysts expect SQ's revenue to increase 26.3% year-over-year to $4.85 billion in the third-quarter, ending Sept. 30, 2022. Furthermore, it has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters. The company's shares have soared 51% in price over the past month.
Among the 29 Wall Street analysts that rated the stock, 26 rated it buy, and three rated it hold. The 12-month median price target of $187.64 indicates a 32.3% potential upside. The stock closed its last trading session at $141.79.
Affirm Holdings, Inc. (AFRM)
AFRM in San Francisco operates a digital and mobile-first commerce platform in the United States and Canada. The company's platform comprises a point-of-sale payment solution for consumers, merchant commerce solutions, and a consumer-focused app. Its payment networks and partnership with an originating bank allow consumers to pay for purchases over time with terms ranging from one to 48 months.
In January, AFRM announced the launch of two significant additions to its products suite–the Affirm SuperApp, which delivers AFRM's best shopping, payments, and financial services in one easy-to-use destination, and a Chrome browser extension that enables consumers to use AFRM's flexible and transparent payment solutions at virtually any retailer's website, even if AFRM listing is not available at checkout.
During the second quarter, which ended Dec. 31, 2021, AFRM's total revenue increased 76.9% year-over-year to $361.01 million. Its cash and cash equivalent stood at $2.57 billion for its fiscal year ending Dec. 31, 2021.
Analysts expect AFRM's revenue to increase 49.1% year-over-year to $344.00 million in the third quarter (ending March 2022). In addition, the company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has surged 19.5% in price over the past month.
Among the 14 Wall Street analysts that rated the stock, eight rated it buy, and five rated it hold. Closing its last trading session at $43.50, the 12-month median price target of $74.86 indicates a 72.1% potential upside. The price targets range from a low of $45.00 to a high of $125.00.
PYPL shares were trading at $114.41 per share on Wednesday afternoon, down $3.46 (-2.94%). Year-to-date, PYPL has declined -39.33%, versus a -5.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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