So-called "buy now, pay later" plans are on the rise as Americans increasingly turn to installment options to fund purchases. That's translated to strong growth for Affirm stock, which has rallied more than 140% from its April lows.

The "buy now, pay later" (or BNPL) leader is due to report earnings next week.

San Francisco-based Affirm Holdings (AFRM) has nearly 22 million active customers and provides flexible, fee-free payment options for purchases ranging from $30 to $30,000 dollars.

The financial services company's core offering is an interest-free "Pay-in-4" plan that allows customers to pay off purchases in four installments every two weeks. It also offers a monthly payment plan, which can vary by interest rate and duration depending on the purchase. Customers can select an Affirm payment plan at checkout in-store, or while shopping online using the Affirm app and swiping with the Affirm debit card.

Affirm's network of over 358,000 merchants as of late March includes behemoths like Amazon (AMZN), Shopify (SHOP), Target (TGT), Stripe, Dick's Sporting Goods (DKS), newly added Costco (COST) and more.

Chief Operating Officer Michael Linford, during a William Blair conference in June, said that Affirm is accepted at 60% of U.S. e-commerce sites.  But that "leaves 40% to go," he said, as Affirm looks to expand its network. Linford expects that 90% of global companies are in its addressable market.

Affirm was unable to comment ahead of its earnings results next week.

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Affirm Stock Rises With BNPL Growth

Meanwhile, more and more customers are turning to BNPL options for purchases. That's been a boon for Affirm, as well as its competitors Klarna, Block (XYZ)-owned AfterPay, PayPal (PYPL), Sezzle (SEZL) and Zip.

"Buy now pay later and Affirm are gaining share of overall consumer spending," Susquehanna analyst James Friedman wrote in a July note. Friedman added that BNPL as a payment method is "gaining relevance" for online and in-store purchases, powered by debit cards and integrations with payment terminals.

Susquehanna expects BNPL use to account for roughly $100 billion in transactions this year. Meanwhile, Oppenheimer forecasts the BNPL market will grow in the high teens to low-20% range over the next two years, according to a research note shared with Investor's Business Daily.

"Affirm stands out as a leader in the Buy Now, Pay Later space," analyst Rayna Kumar wrote, citing the company's "advanced underwriting, robust funding strategy, strong merchant relationships and advanced pricing model."

Kumar believes these factors should continue driving Affirm's market share gains. Oppenheimer initiated coverage of Affirm stock in July with an outperform rating and an 80 price target.

Affirm's BNPL Market Share

Affirm held a 13% share of the BNPL market at the end of 2024, according to Oppenheimer data, up about 400 basis points from 2022. That's the largest gain among its rivals, including PayPal, AfterPay, Sezzle and Zip. PayPal saw the second-largest market-share growth in 2022 to 2024, gaining 100 basis points.

Klarna has been the leader in the space and held a 45% share last year. But its hold is slipping, having fallen 700 basis points from 2022 to 2024.

Affirm's gross merchandise volume (GMV) gains, which is the total amount of all processed transactions, has also outpaced Klarna. The company's GMV saw a 42% compound annual growth rate (CAGR) from 2022 to 2024, compared with a 13% CAGR for Klarna.

Klarna still leads in terms of customers with 100 million active users, followed by AfterPay at 24 million and Affirm at 22 million, as of July.

However, Klarna, AfterPay, Sezzle and Zip have various late fees for missed payments. Affirm and PayPal do not.

Who Uses BNPL?

Morgan Stanley's AlphaWise research group ran a survey of Americans earlier this year that found that 28% of respondents had a BNPL loan, according to a June report.

The survey found that younger consumers are more likely to use BNPL payment options. Of the respondents, 41% of those age 16 to 24 used BNPL for purchases. Roughly 39% of respondents age 25 to 34 used BNPL options. Older customers appear less inclined to adopt BNPL payments. Only 11% of respondents over the age of 65 reported having a BNPL loan.

For Affirm, about 46% of its customers are millennials, and about 29% are Gen X, according to Oppenheimer data.

Meanwhile, Americans are turning to BNPL for smaller-ticket items. About 41% of respondents reported using BNPL for clothing and footwear purchases. Electronics make up the second-largest BNPL category, with 31% of respondents using a "buy now, pay later" plan for those purchases. Morgan Stanley reported that 39% of respondents used BNPL plans for groceries.

Affirm, during its third-quarter report in May, reported that its average order value, a measure of cart/transaction size, declined to $273 from $323 last year. The average order value has fallen from $594 per order in the first quarter of 2020.

High Earners Turn To Payment Plans

But it isn't low-income customers turning to BNPL — high-income customers are.

Americans making $100,000 to $149,999 annually are the most likely to use BNPL loans, with 38% of respondents utilizing a payment plan. About 33% of respondents making over $150,000 annually use BNPL. Of consumers earning $75,000 to $99,999 per year, about 31% have a BNPL loan.

Only 18% of respondents making under $25,000 annually reported having a BNPL loan.

Morgan Stanley strategist Carolyn Campbell, in the report, wrote that frequent use of BNPL on everyday items could be a sign of greater market penetration and outreach from customers offering those loans. It could also be a sign of increased consumer stress.

"As consumers use BNPL more frequently and for more reasons, we think it is worth keeping an eye on it," Campbell wrote. "However, data suggest that the level of debt taken on through BNPL as well as delinquency and default rates, are still very low compared to other types of consumer debt."

Linford, Affirm's COO, estimates there is about $1.2 trillion in credit card debt in the U.S., which works out to an average of $10,000 per household.

"Our product gives consumers a way to buy the things they want and need and pay for it over time, without the fear of revolving debt, without late fees or any other gotchas and tricks that credit cards often rely on," he said during the William Blair conference in June.

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Will Earnings Move Affirm Stock?

Meanwhile, Affirm is slated to release its fourth-quarter results on Aug. 28.

JPMorgan on Tuesday raised its price target on Affirm stock to 84 from 69 and kept an overweight rating on the shares, The Fly reported. Analyst Reginald Smith said that data from card issuers and BNPL providers indicates stable to accelerating spending trends. That should translate to a quarterly revenue beat for Affirm.

Smith believes that Affirm is positioned to beat estimates for gross merchandise volume. But much of the focus from analysts will be on the company's 2026 outlook.

FactSet expects Affirm's earnings per share to improve to 12 cents, from a loss of 14 cents last year. Analysts forecast that sales will jump 27% to $837 million.

Wall Street sees GMV jumping 34% to just over $9.6 billion.

But TD Cowen analyst Moshe Orenbuch in a recent note also said that GMV figures could clear the top end of Affirm's fourth-quarter guidance for 30%-34% growth by "several ppts (percentage points)," based on observed sales data trends during the quarter. He predicts that Affirm's mix of 0% APR loans will be "relatively stable" as the company continues to attract higher-end consumers. Orenbuch will be watching for developments about Affirm's merchant pipeline and any comments about new additions.

Analysts expect Affirm to post its first GAAP profit this year since going public in 2021. FactSet forecasts earnings of 5 cents per share, up from a loss of $1.67 per share last year. Earnings are expected to balloon to $2.16 per share by 2027. Revenue is expected to reach $3.18 billion for 2025, then grow to $4.78 billion over the next two years.

Gross merchandise volume during that period is expected to explode to $56.88 billion from a forecast for $35.88 billion in 2025.

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Potential Risk

However, Evercore analyst Adam Frisch said there is some "growing concern" about potential volume declines at Walmart, which accounts for about 5% of gross merchandise volume. Walmart and Klarna earlier this year announced a partnership, making Klarna the Dow retailer's exclusive BNPL provider for Walmart OnePay.

That could lead to management guiding for 2026 GMV volumes excluding Walmart. But the risks to Walmart's volumes have been "well-telegraphed," Frisch wrote in an Aug. 18 note shared with IBD. However, OnePay is a "unique situation" that isn't replicated by other large clients. Evercore still expects 27% GMV growth in 2026, even without Walmart volumes.

Frisch said that Affirm still has the "best risk platform in the space and will continue to benefit over the long term" from new verticals, as well as product and geographic expansion. The firm added Affirm stock to its short-term tactical underperform list, based on the near-term risk/reward profile, and noted that there could be some profit-taking with shares up more than 130% since early April.

However, Frisch wrote that this is "not a fundamental change of our longer-term positive investment thesis." He maintained an outperform rating on Affirm stock.

Affirm Stock

Affirm stock is a member of the IBD 50 list of top growth stocks as well as the IBD MarketSurge Growth 250.

Shares have rallied more than 140% from their early-April lows, pushing their 2025 gain north of 20%.

On Aug. 4, shares broke out above a 73.11 buy point from a very deep cup-with-handle base. Shares are still actionable as they test support at the 21-day exponential moving average, while holding above their 50-day line.

Affirm's relative strength line has trended higher since April. The stock has a 95 Relative Strength Rating out of a best-possible 99, reflecting its strong 12-month performance.

You can follow Harrison Miller for more stock news and updates on X/Twitter @IBD_Harrison

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