Morgan Stanley has upgraded Affirm Holdings Inc. (NASDAQ:AFRM), a payment network operator in the U.S. and Canada, as the company has started implementing strategies to attract higher-income users.
The analyst had previously expressed concerns about Affirm’s growing customer base, noting that it was becoming more skewed toward lower-income individuals with weaker credit profiles, which could challenge the company’s long-term growth.
However, Affirm’s integration with Apple Pay has expanded its reach to a younger, higher-income demographic. Morgan Stanley expects this partnership to generate an additional $1.94 billion in transaction volume by FY26, surpassing the earlier estimate of $1.0-1.5 billion.
The analyst has upgraded Affirm stock from Underweight to Equal-Weight with a price target of $37, up from $20.
Morgan Stanley observes that higher-income consumers are often the most responsive to promotional interest rates and is encouraged by Affirm’s initiatives to strengthen direct sales engagement with manufacturers and merchants.
By enhancing efforts to showcase Affirm’s ability to boost purchase sizes and improve conversion rates for manufacturers, the analyst anticipates an increase in promotional financing offers throughout FY25, leading to a more positive outlook on engagement with affluent consumers.
Morgan Stanley notes that expanding the availability of lower promotional rate pricing could further enhance Affirm’s appeal to higher-income consumers—a critical factor in complementing its improved distribution and promotional strategies.
Recently, management has discussed leveraging a lower cost of capital to offer a range of promotional rates beyond 0% (such as 1.99% or 4.99%).
Morgan Stanley notes that more younger consumers now hold credit cards than five years ago, and Affirm, as a Buy Now, Pay Later (BNPL) provider, is perceived as less trustworthy than established players like PayPal and Apple.
However, the firm highlights that increasing brand awareness could narrow this trust gap, potentially weakening incumbents’ hold on younger consumers.
Price Action: AFRM stock is up 4.34% at $42.94 at last check Wednesday.
Image: Shutterstock by PopTika
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