BNPL Sector Faces Student Loan Headwinds - Analyst Highlights Affirm, Block, and PayPal

In light of the upcoming student loan repayments, there's growing speculation about its potential ripple effect on the 'buy now, pay later' (BNPL) sector. 

Mizuho analyst Dan Dolev remains optimistic, reiterating Buy ratings on key players in the industry: Affirm Holdings, Inc AFRM with a target of $20.00, Block, Inc SQ at $90.00, and PayPal Holdings, Inc PYPL with a $92.00 target.

A recent survey delving into the habits of approximately 300 active BNPL users, spanning platforms like Affirm, Afterpay/SQ, Klarna, and PayPal, unveiled that half of them are grappling with student loans. 

This demographic is potentially looking at an added annual financial burden of around $3,000, which is about 4% of their average household earnings. This scenario might present a 2% setback for the BNPL industry at large, reports.

Income Dynamics Among Borrowers: The silver lining? Those saddled with student loans reported an income surplus of $10,000 compared to their loan-free counterparts. 

This suggests that BNPL companies might have a buffer against potential credit pitfalls, courtesy of the marginally elevated earnings of student loan borrowers.

App Usage and Income Correlation: Another interesting find from the survey was the positive relationship between the number of BNPL platforms a user is on and their income bracket. 

For instance, single-app users reported an average income close to $50,000. In contrast, those spread across four platforms boasted an average income nearing $105,000.

However, it's not all rosy. A notable trend was that BNPL aficionados with student loans typically spread their wings across more platforms. On average, student loan borrowers juggled 2.5 platforms, while their counterparts without student loans stuck to 1.7. 

This dual dynamic of higher incomes potentially being offset by the 'stacking' of multiple BNPL services is worth noting.

The survey's methodology was stringent, zeroing in on four major BNPL giants and filtering out sporadic or seldom BNPL users. The objective was clear: to glean insights from the active BNPL user base, segregating student loan borrowers from the rest.

In wrapping up, the imminent student loan repayments might cast a shadow on the BNPL landscape. Yet, the elevated income brackets of borrowers and their diverse app usage might offer a cushion. But, the propensity of student loan borrowers to diversify across BNPL platforms is a looming concern.

Price Actions: AFRM shares traded lower by 3.37% at $14.61 on the last check Tuesday. PYPL shares traded lower by 3.71% at $60.90. SQ shares traded lower by 1.72% at $59.12.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.