As markets fall, big business fights back against disruptive growth stocks

Find out who’s duking it out for supremacy in a key market.

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This article was originally published on All figures quoted in US dollars unless otherwise stated.

The stock market fell on Tuesday, as investors started to react negatively to sustained inflationary pressure. By the close, the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) were modestly off their record levels, and the Dow Jones Industrial Average (DJINDICES: ^DJI) also gave back some ground.
Index Percentage Change (Decline) Point Change
Dow (0.31%) (107)
S&P 500 (0.35%) (15)
Nasdaq Composite (0.38%) (56)

Data source: Yahoo! Finance.

For a long time, investors have followed the prospects of disruptive small companies seeking to take on some of the giants of their respective industries. Yet skeptics of those disruptors have long argued that it was only a matter of time before Big Business fought back. That happened today to Affirm Holdings (NASDAQ: AFRM), and it'll be very interesting to see how things play out in a high-stakes battle for supremacy in a fast-growing area of fintech.

Apple takes on Affirm

Affirm offers an installment-payment service, known more colloquially as "buy now, pay later." Affirm's service allows customers to choose from multiple options about how they want to repay, with some short-term arrangements adding little or no cost to the transaction while some more-extended payment plans come with larger tack-on payments over and above the total cost of the item. Affirm's service has been highly popular, especially as the company built partnerships with companies like e-commerce platform provider Shopify to give its merchant customers access to Affirm's installment-plan payment program. However, shares of Affirm fell more than 10% by the close today, plunging in the midafternoon once news surfaced that the company would likely face competition from a huge potential rival. Apple (NASDAQ: AAPL) is reportedly planning to come out with its own installment-payment service, using its existing Apple Card relationship with banking giant Goldman Sachs (NYSE: GS) and expanding it to make the new buy now, pay later feature work. The move apparently stems from Apple's current offerings for buyers of iPhones and other Apple products. Apple Card holders can buy iPhones in installments lasting two years, with payments getting coordinated with credit card minimum payments. Doing a broader installment service makes sense and is consistent with in-house solutions expanding to cover larger swaths of promising markets.

Get ready for more fighting

Affirm isn't the only company that's potentially vulnerable to existing industry giants fighting back against disruptors. Whole hosts of high-flying new companies will likely have to demonstrate their competitive advantages even against massive pressure. For instance, Upstart Holdings (NASDAQ: UPST) uses alternatives to the credit scoring systems that FICO (NYSE: FICO) and others offer. Upstart has proprietary artificial-intelligence (AI) powered assessment tools to make better-informed decisions about extending credit to those who are underserved by traditional credit providers. But there's nothing stopping FICO (also known as Fair Isaac) and other credit-score providers from teaming up with AI-savvy companies to make their own upgraded algorithms. Many companies have the same first-mover advantage as Upstart but face similar competitive challenges in the long run. That doesn't necessarily mean that the disruptors are doomed to failure, but it does mean that investors can't just assume that massive mega-cap companies in key sectors will just roll over and give way to competition. If indeed Apple is looking to go up against Affirm, it could prove to be just an early shot in a larger war between young new disruptive companies and the big businesses they're trying to make obsolete.

This article was originally published on All figures quoted in US dollars unless otherwise stated.

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Dan Caplinger owns shares of Apple and Shopify. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Affirm Holdings, Inc., Apple, and Shopify. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $1,140 calls on Shopify, long March 2023 $120 calls on Apple, short January 2023 $1,160 calls on Shopify, and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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