2 High Growth Buy Now, Pay Later Stocks Challenging PayPal

Recent earnings show that the buy now, pay later (BNPL) business model is growing rapidly. One of the most established players in the payments space with BNPL offerings is PayPal (NASDAQ: PYPL). The company mentioned in its latest earnings call that payment volume through its BNPL product grew by 20% in Q1.

PayPal is putting a significant amount of effort into this area of growth because BNPL customers are particularly active. The company notes that these users spend 33% more on average and conduct 17% more transactions.

However, even with the significant growth in this offering, PayPal is far from a growth stock at this point. The company’s revenues increased by just 2% last quarter on a constant currency basis. So, where could investors look to get in on pure-play, high-growth BNPL stocks? Two options in particular stick out.

Sezzle: Small Fish Showing Rapid Growth and Big-Time Profitability

One of the biggest winners so far in the Q1 earnings season is the mid-cap BNPL stock Sezzle (NASDAQ: SEZL). In Q1, the financial services company reported blistering revenue growth of over 123%. The wins didn’t stop there. The company also saw its adjusted operating margin rise by over 1,600 basis points compared to Q4 2024.

Despite being a relatively small and fast-growing company, Sezzle is also highly profitable. Last quarter, it notched an adjusted net income margin (NIM) of over 34%, which is vastly more impressive than the less than 1% NIM figure achieved by competitor Affirm (NASDAQ: AFRM) last quarter.

Sezzle also massively increased its guidance for 2025. The company increased the midpoint of its revenue growth guidance from 25% to over 62%. It also upped its adjusted earnings per share guidance by 47% to $3.25. Overall, Sezzle blew expectations out of the water with its Q1 financials. As a result, shares skyrocketed over 42% in the day after the release.

After the results, analysts at B. Riley notably increased their price target on Sezzle by 60% to $101 per share. This equates to around 12% upside compared to the stock's May 13 closing price. This limited upside likely reflects that Sezzle is still a small player in this highly competitive market. Sezzle’s gross merchandise volume (GMV) was less than 10% of Affirm’s last quarter. This means that Affirm's platform is much more popular. This is key to establishing partnerships with big retailers, which can lead to significant growth. Affirm’s advantages on this front are evident below.

Affirm: Scaled BNPL Company With A Massive New Partnership

Affirm also demonstrated significant growth last quarter, with revenues rising by 36%. The company still reported strong results, beating expectations on revenue and adjusted EPS. It even raised guidance for next quarter. However, the guidance raise was less than what Wall Street had hoped for, causing shares to drop over 14% afterwards.

Some see the drop as a way to get in on Affirm shares. Analyst Dan Dolev called the drop in Affirm stock “a huge buying opportunity." However, it is important to note that this statement came before the shares jumped nearly 16% on May 12 after the announcement of the Trump-China trade deal.

Still, this doesn’t mean the disappointment that led to the stock’s massive post-earnings fall was fully accounted for with this up move. Affirm shares likely would have gained significantly on the trade deal news even if shares didn’t fall post-earnings.

A particularly positive development in Affirm’s earnings was the announcement of a new partnership with a massive retailer. Costco Wholesale (NASDAQ: COST) will offer Affirm as a payment option for online shoppers. This is significant considering that estimates put Costco’s total e-commerce revenue at north of $11 billion in 2024.

It is also worth noting that Costco’s e-commerce comparable sales grew by over double the rate of its overall business at 22% on a constant currency basis. DigitalCommerce360 ranks Costco as the seventh-largest online retailer in North America. This partnership can provide a significant shot in the arm to Affirm’s GMV and allow it to take part in the strong e-commerce growth Costco is seeing. The company has a big edge over Sezzle here. Costco probably wouldn't team up with the less established name.

Overall, Sezzle and Affirm offer two interesting and significantly different ways to take part in the growth of the BNPL industry. Investors should examine their risk tolerances when trying to deciding between highly established players like PayPal and Affirm, or up-and-comers like Sezzle.

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