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Buy now, pay later (BNPL) platform Affirm (AFRM -12%) sells off today after losing its partnership with Walmart (WMT), which announced it would leverage Klarna for its BNPL loans. The timing is perfect for Klarna, which filed documents for a potential IPO on Friday after the close, gearing up for a possible listing this year. Conversely, while having its ties cut with its long-time partner, providing BNPL services since 2019, is never welcomed, it comes at a moment when AFRM has already tumbled by nearly 40% from February highs.

AFRM recently reported impressive Q2 (Dec) results, supporting a jump to three-year highs last month, headlined by a 35% pop in gross merchandise volume (GMV) yr/yr, an uptick from the previous quarter. AFRM noticed an increasing demand for 0% APR offers across a broad scope of merchants and verticals. At the same time, management mentioned that U.S. consumers, which comprise nearly all of AFRM's revenue (a key difference compared to Klarna and its greater international presence), were healthy, continuing to shop and pay back loans.

However, economic conditions and consumer sentiment have soured rapidly in the weeks since AFRM's Q2 report. Retailers, including WMT, have issued cautious outlooks amid tariff and inflation uncertainty. While AFRM has repeatedly noted that it is not in the business of nudging consumers to spend more, if they are spending significantly less, the company will ultimately feel the consequences, driving such a sharp pullback over the past several weeks.

• WMT was a meaningful partner for AFRM. The company stated today that the merchant comprised 5% of its GMV during the final six months of 2024. WMT currently offers AFRM's BNPL services for online and in-person checkout, expanding to its checkout kiosks at over 4,500 stores in late 2023. Given WMT's domestic presence and steady market share capture, AFRM likely enjoyed meaningful growth exclusively from its logo being prominently displayed at Walmart.
  • AFRM also referenced some of its most important partnerships in past conference calls, noting how WMT, as well as other e-commerce titans, like Amazon (AMZN) and Shopify (SHOP), were major partners, illuminating their influence on overall growth.
• An underlying factor as to why WMT gravitated toward Klarna is OnePay, the retailer's majority-owned fintech firm, which already started offering BNPL loans last year. Klarna is partnering with OnePay to provide the BNPL services via the OnePay app. While AFRM will remain the logo for now, Klarna will become the exclusive option once it is fully integrated with OnePay sometime this year.

While AFRM boasts brand loyalty, getting the boot altogether is an entirely different situation. After WMT announced its BNPL offering last year, AFRM noted that its brand loyalty insulates it from facing a material fallout in revenue from OnePay, adding that even when its services are the second or third option on e-commerce sites, it still witnesses plenty of growth. However, AFRM's logo will no longer be displayed at WMT locations or online after this year, giving up a lucrative partnership when anxieties about the economy escalate. As a result, AFRM may continue to face outsized selling pressure.