"Walmart-Klarna Deal: Affirm's Stock Plummets, Goldman Sachs Analyst Weighs In"

Ladies and Gentlemen, BUYERS BEWARE! The retail landscape just got a major shakeup, and it's all thanks to the Walmart-Klarna deal. Affirm Holdings Inc (AFRM) just got knocked out of the ring by Klarna, and the market is feeling the impact. Let's dive into the details and see what Goldman Sachs has to say about it.

First things first, let's talk about the elephant in the room. Walmart, the retail giant, has just announced that it's partnering with Klarna to offer buy now, pay later (BNPL) loans to its customers. This means that Affirm, which has been Walmart's exclusive BNPL provider since 2019, is out of the picture. And let me tell you, the market is not happy about it.

Affirm's stock took a nosedive on the news, dropping 9.35% to $43.48. But why the sudden plunge? Well, it's all about the numbers. Walmart's contribution to Affirm's GMV (gross merchandise value) was estimated to be around 5% of total GMV. That's a significant chunk of business to lose overnight.

But here's where it gets interesting. Goldman Sachs analyst Will Nance initially estimated that Walmart's contribution to Affirm's CY2024 GMV would be roughly $2.2 billion, or 7% of the total. However, subsequent to the publishing of the analyst note, Affirm published an 8-K in which the company noted that Walmart comprised 5% of GMV and 2% of operating income. This discrepancy led to a reduction in the price forecast for AFRM to $50 from $90. The analyst then increased the price forecast for AFRM to $56.00, reflecting a lower operating income headwind, although still lower than before the announcement.

So, what does this all mean for Affirm? Well, it's a mixed bag. On one hand, the loss of Walmart as a partner is a significant blow. But on the other hand, Affirm has other strategic partnerships in place, such as its exclusive partnership with Shopify through 2028. And let's not forget about the growth of BNPL in e-commerce and the younger generation's preference for installment financing. Affirm is poised to benefit from these trends, and its consumer-friendly approach and innovative products are expected to drive market share gains.

But don't just take my word for it. Let's hear what Goldman Sachs has to say. According to the analyst, the financial impact of Walmart’s partnership termination on Affirm is now seen as lower than initially expected. This is due to Walmart’s history with third-party credit providers and the lower profitability of the Walmart partnership. Affirm’s lower operating income from this partnership (less than 1% margin) supports this view. The analyst increased price forecast for AFRM in line with the reduced operating income headwind, although still lower than before the announcement, reflecting lower peer multiples and the likely increase in investor sensitivity to competitive intensity.

So, what's the bottom line? Well, it's clear that the Walmart-Klarna deal is a game-changer for the BNPL industry. Affirm has taken a hit, but it's not down for the count. The company has other strategic partnerships in place, and it's well-positioned to benefit from the growth of BNPL in e-commerce. But make no mistake, this is a competitive industry, and Affirm will need to stay on its toes if it wants to stay ahead of the pack.

So, what do you think? Are you bullish or bearish on Affirm in the wake of the Walmart-Klarna deal? Let me know in the comments below. And remember, folks, this is a fast-moving market, and things can change in an instant. So, stay tuned for more updates, and happy investing!