Affirm Expands BNPL to Rent Amid Financial Sector Weakness; Valuation Overhang Unchanged

What happened

Affirm Holdings is expanding its buy now, pay later services to include rent payments, aiming to diversify revenue and tap into a new consumer credit segment. This move occurs as financial stocks, including fintech, have underperformed, with the S&P 500 financials sector losing 2.73% over the past month. The DeepValue report notes Affirm's strong operational performance, with GMV growth to $36.7B and GAAP profitability, but highlights severe overvaluation at 104x P/E and a 204% premium to DCF. While rent payments could drive incremental growth, they introduce additional credit risk in a sector with high delinquencies and do not address Affirm's leveraged balance sheet or regulatory uncertainties. Thus, this expansion does not alter the core investment thesis of elevated risk-reward imbalance.

Implication

Affirm's entry into rent payments expands its total addressable market and may boost user engagement, supporting long-term revenue growth. However, this new segment could increase credit exposure amid already high sector delinquencies, adding to existing risks. The company's leveraged balance sheet, with Net Debt/EBITDA of 9.13x and thin interest coverage, remains a vulnerability. Regulatory scrutiny from bodies like the CFPB could further compress BNPL economics. Given the stock's premium valuation, investors should maintain a defensive stance, as the expansion does not justify the current price levels or mitigate core financial concerns.

Thesis delta

The expansion into rent payments aligns with Affirm's growth strategy and may provide additional revenue streams, but it does not address the fundamental issues of overvaluation, leverage, or regulatory risk. Therefore, the POTENTIAL SELL recommendation from the DeepValue report remains unchanged, with no material shift in the investment thesis.