Financial services provider for shoppers and merchants, Affirm Holdings Inc ( AFRM ) competitor Klarna announced a partnership with OnePay to offer installment loans at Walmart Inc ( WMT ) .

The exclusive deal with Walmart ( WMT ) means Affirm will no longer provide loan installment services for the retailer. Affirm has been offering installment loan services exclusively to Walmart ( WMT ) customers since 2019.

Goldman Sachs analyst Will Nance reiterated a Buy rating on the shares and raised the price forecast from $50.00 to $56.00 on Monday.

Earlier yesterday, Nance reduced the price forecast for AFRM to $50 from $90. The analyst earlier estimated that Walmart’s contribution to CY2024 GMV to be roughly ~$2.2 billion (7% of total).

Subsequent to the publishing of the analyst note yesterday morning sizing the impact, Affirm published an 8-K in which the company noted that Walmart ( WMT ) comprised 5% of GMV (vs the analyst’s ~5-10% estimate) and 2% of operating income (vs the analyst’s 10-19% impact estimate).

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 ( WMT ) partnership.

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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.

AFRM recently extended its exclusive partnership with Shopify through 2028, securing a 3-year agreement. Both Shopify and Amazon, AFRM’s largest partners, hold long-term warrants for AFRM shares, suggesting a deeper, more strategic relationship compared to its previous partnership with Walmart ( WMT ), which was more distant.

AFRM is considered a leading underwriter in the subprime and near-prime credit space, with underwriting capabilities comparable to top incumbents like Capital One.

Its consumer-friendly approach, innovative products, and focus on e-commerce distribution are expected to drive market share gains, per the analyst.

AFRM is poised to benefit from the growth of BNPL in e-commerce, the younger generation’s preference for installment financing, and BNPL’s more tailored credit offerings compared to traditional credit cards, the analyst opined.

Walmart ( WMT ) has a history of changing credit providers, including ending relationships with Synchrony and Capital One in recent years. This pattern of aggressive partner shifts will likely make investors more cautious about partner concentration risks and competitive pressures in the industry, noted the analyst.

Price Action: AFRM shares traded lower by 9.35% at $43.48 at last check Tuesday.

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