Affirm is operating in an Oligopoly

The current competitive environment for BNPL providers can be described as an oligopoly. In terms of worldwide GMV, Klarna reigns supreme (although their US GMV is comparable to the other two), and Affirm is roughly on par with Afterpay.

Current market share by GMV

Klarna: 62% Afterpay: 19% Affirm: 17%

Other BNPL providers such as Sezzle and Zip exist, but have been sidelined due to their lack of scale and would reach low single-digits in market share at most.

While Affirm is currently in third place, the partnerships forged by the company with Shopify and Amazon are starting to pay off. In each of the past 5 quarters, Affirm has grown GMV (and revenue) significantly faster than its competitors, pulling away more strongly each quarter.

GMV growth rate in Q1 2024:*

Affirm: 37% Afterpay: 25% Klarna: 18%

The e-commerce market in the USA is dominated by two competitors (yet another Oligopoly): Amazon and Shopify. Affirm has tie-ups with both of these, and is the default BNPL provider in the USA on the two websites. Partnerships like these are starting to drive incremental growth to Affirm – they don’t have to spend a ton of money to acquire new customers, as anyone shopping on Shopify or Amazon will inevitably encounter them.

*Apple Pay partnerships confirms their dominance with large merchants

They recently signed an agreement to become the default BNPL provider for Apple Pay. This is significant for three reasons:

1. Incremental growth due to Apple’s size

Mizuho estimated that Apple Pay represents approximately USD 265 billion in US payment volumes, of which Affirm might capture USD 12 billion in GMV. At their current ratios, this would mean approximately USD 1 billion in incremental revenue for Affirm.

1. Confirmation of Affirm’s track record

Even more importantly, it is yet another sign of a huge, customer-obsessed company signing with Affirm. These companies are placing a lot of trust in the fact that Affirm can provide a smooth customer experience, and it seems they have not let anyone down so far.

1. Makes competition less likely

Affirm stock took a hit about a year ago when Apple first announced they would get into the BNPL business. Their fast withdrawal now signals not only that Affirm is a reliable provider for large companies, but also that the business has significant barriers to entry that even a huge company like Apple was not willing to attack.

Now that Affirm is offered at Amazon and Shopify, it is quite unlikely for these companies to adopt a second default BNPL option. In fact, Affirm had an exclusivity arrangement with Amazon that expired in January 2023, but the company has yet to add another BNPL provider. Why should they? As long as Affirm is able to fulfill all requests by customers who ask for BNPL, there is no need to complicate things with an additional provider.

Conclusion

Affirm is a bit of a controversial stock with varying price targets. Based on their financial track record and management, I am confident that they have set the right levers for continued growth in the coming years. On a 5-10 year timescale, I am very confident that Affirm will significantly outperform the overall e-commerce growth, as well as all its BNPL competitors.

In recent days, several warnings were issued by UN officials and UNRWA about the crime and looting that is rampant in Gaza, warning that they might soon no longer be able to distribute aid deliveries in Gaza.

“Foreign Minister Israel Katz held a tense meeting on Tuesday with UN Senior Humanitarian and Reconstruction Coordinator for Gaza Sigrid Kaag, Katz’s office told The Times of Israel.

Kaag told Katz that chaos and crime are spreading in Gaza, and if the situation doesn’t change, soon the UN won’t be able to continue operating in the Strip, the report said.”

“The head of the United Nations agency supporting Palestinian refugees warns that a breakdown of civil order in Gaza has allowed widespread looting and smuggling, and blocked aid deliveries.”

https://www.timesofisrael.com/un-said-to-warn-it-may-halt-its-humanitarian-operations-in-gaza/

Why do you think it has taken the UN until now, 8 months into the war, to warn about the widespread looting and smuggling that is commonplace with aid deliveries in Gaza?

Previously, the UN has strongly criticized a supposed lack of sufficient aid deliveries through Israel. There was even talk of an imminent famine in Gaza. It seems the messaging has now pivoted, and Israel is not blamed for a lack of aid deliveries, but rather for the chaos caused by Hamas and other looting gangs in Gaza. Why do you think the UN has changed their messaging so significantly?

What do you think would be the best way of alleviating the food shortage in Gaza? Is Israel responsible for doing more? Or does their responsibility end as soon as the goods have arrived past the Gazan border?

Do you think it is fair that the UN has been blaming Israel for a famine for months now, even though most of the holdups are occurring on the Gaza side of the border to the UN’s inadequacies, as they have now conceded after 8 months?

For context I’m rather pro-Israeli, I support their existence and most of the actions they have taken post-October 7th.

As an outside observer with no direct ties to the conflict, looking at the current situation worries me. While I understand the need for Israel’s invasion, in practice it has led to a huge increase in the support for Hamas. While I’m sure Israel is capable of neutralizing most of Hamas military infrastructure, convincing over 2 million Gazans to want to be good neighbors will be the more difficult task after this war.

A 2-state solution seems almost impossible now, despite western countries doing their best to pretend the opposite. Both Netanyahu and Hamas have ruled it out categorically. The possibility of a 1-state solution is even harder to accept, given that Israel would never admit a significant number of new Palestinian immigrants right now, and Palestinians welcoming Israelis in their state is… even harder to imagine.

Israel is clearly unhappy with the security risk posed by the small Gaza Strip and has already implemented a buffer zone. The current government is also unwilling to directly administer Gaza and to nominate any other state or entity to take over the job. So roughly 2 million Gazans will, for now, stay pretty much where they were before October 7. But I highly doubt the past year has made them more amenable towards Israel as a neighbor.

Hard right forces seem to be gaining in Israel. Palestinians in the West Bank nor Gaza want to go anywhere else, nor do Israelis. Are there even any realistic and feasible solutions left that don’t involve one of the groups ethnically cleansing the other?