We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Affirm (AFRM) Falls 22% in a Month: Should You Buy the Dip?
Read MoreHide Full Article
Affirm Holdings, Inc. (AFRM - Free Report) shares have lost 21.6% in the past month compared with the industry’s 6.4% decline. It has also lagged the broader Zacks Business Services sector’s 4.3% fall and the S&P 500’s 5.5% dip in the said time frame. The company has been grappling with elevated operating costs, higher interest rates and intensified competition in the buy now, pay later (BNPL) space. It has a market cap of $7.8 billion.
Image Source: Zacks Investment Research
Closing at $25.17 in the last trading session, the stock stands almost 52% below its 52-week high of $52.48.
What’s Weighing on Affirm’s Performance?
The company has been experiencing rising costs across various segments, which have significantly impacted its financial performance. As a provider of digital payment solutions, AFRM invests in technology, which is central to its operations and necessary for maintaining a competitive edge in a booming digital era. As a result, it continues to incur substantial technology and data analytics expenses.
Furthermore, funding costs more than doubled year over year in the first nine months of fiscal 2024, primarily due to higher benchmark interest rates and an increase in funding debt and notes issued by securitization trusts. These rising expenses have placed additional pressure on the company’s ability to achieve sustained profitability.
The company has been impacted by an increase in provision for credit losses, reflecting the anticipated losses on loans held for investment. For the first nine months of fiscal 2024, the provision for credit losses escalated 44.5% year over year. This increase indicates a growing concern over the potential for loan defaults and its subsequent impact on Affirm’s profitability.
Affirm operates in a highly competitive and dynamic industry where its technology platform faces significant competition from a range of players, including those involved in digital payments. It primarily competes with credit and debit cards provided by major financial institutions, payment solutions from Visa (V - Free Report) and Mastercard (MA - Free Report) , mobile wallets such as PayPal (PYPL - Free Report) and other "pay-over-time" solutions offered by companies like Block and Klarna.
The competitive landscape is expected to intensify due to the low barriers to entry in the pay-over-time industry. As new technologies emerge and financial giants come up with new strategies, Affirm faces the challenge of maintaining its market share. This competition puts pressure on the company to continually innovate and potentially alter its pricing to remain attractive to both merchants and consumers.
Estimates Favoring the Stock
The Zacks Consensus Estimate for fiscal 2024 earnings indicates a 40.7% year-over-year improvement, while the estimate for fiscal 2025 implies a 26.5% improvement. Over the past week, the estimates have remained stable. Moreover, the consensus mark for fiscal 2024 and fiscal 2025 revenues indicates 42.6% and 22.9% year-over-year growth, respectively.
Image Source: Zacks Investment Research
Stock Valuation
The stock is currently trading at a discount compared with the historical levels. It is trading at a forward 12-month price-to-sales multiple of 2.73 compared with the past three-year median of 4X. It is also lower than the S&P 500’s level of 4.96X.
Image Source: Zacks Investment Research
Factors Benefiting AFRM
Affirm boasts a strong merchant network. It continues to add merchant partners, which, in turn, boosts the usage of its financing products suite and brings higher merchant fees. This revenue component is earned from merchant partners in return for using the AFRM platform for processing transactions. In June 2024, it collaborated with Brittain Resorts & Hotels to offer flexible payment options, thereby enhancing customer convenience and expanding AFRM's retail partner network.
Besides, it uses cutting-edge technology and machine learning to deliver scalable products and quick integration for merchants. A booming BNPL market provides AFRM with the perfect opportunity to utilize its product suite. The space continues to witness widespread popularity as consumers seek installment payment options owing to the financial relief of not having to pay the entire amount at the time of checkout.
Strategic partnerships with well-established companies such as Evolve, Walmart and Liberty Travel are anticipated to enhance the company’s market presence further. Its solid financial position, supported by robust cash reserves and commendable cash-generating abilities, enables it to undertake uninterrupted business investments. It generated operating cash flows of $381.4 million in the first nine months of fiscal 2024 against cash used in operations of $31.6 million in the prior-year comparable period.
Wrapping Up
While Affirm faces near-term challenges, its strategic initiatives and cutting-edge technology platform could pave the way for recovery and sustained growth. Its improving profit estimates and an expanding BNPL industry inspire investor optimism. The decline in its share price sparks optimism while its attractive valuation is likely to convince investors to add the stock to their portfolio.
Image: Bigstock
Affirm (AFRM) Falls 22% in a Month: Should You Buy the Dip?
Affirm Holdings, Inc. (AFRM - Free Report) shares have lost 21.6% in the past month compared with the industry’s 6.4% decline. It has also lagged the broader Zacks Business Services sector’s 4.3% fall and the S&P 500’s 5.5% dip in the said time frame. The company has been grappling with elevated operating costs, higher interest rates and intensified competition in the buy now, pay later (BNPL) space. It has a market cap of $7.8 billion.
Image Source: Zacks Investment Research
Closing at $25.17 in the last trading session, the stock stands almost 52% below its 52-week high of $52.48.
What’s Weighing on Affirm’s Performance?
The company has been experiencing rising costs across various segments, which have significantly impacted its financial performance. As a provider of digital payment solutions, AFRM invests in technology, which is central to its operations and necessary for maintaining a competitive edge in a booming digital era. As a result, it continues to incur substantial technology and data analytics expenses.
Furthermore, funding costs more than doubled year over year in the first nine months of fiscal 2024, primarily due to higher benchmark interest rates and an increase in funding debt and notes issued by securitization trusts. These rising expenses have placed additional pressure on the company’s ability to achieve sustained profitability.
The company has been impacted by an increase in provision for credit losses, reflecting the anticipated losses on loans held for investment. For the first nine months of fiscal 2024, the provision for credit losses escalated 44.5% year over year. This increase indicates a growing concern over the potential for loan defaults and its subsequent impact on Affirm’s profitability.
Affirm operates in a highly competitive and dynamic industry where its technology platform faces significant competition from a range of players, including those involved in digital payments. It primarily competes with credit and debit cards provided by major financial institutions, payment solutions from Visa (V - Free Report) and Mastercard (MA - Free Report) , mobile wallets such as PayPal (PYPL - Free Report) and other "pay-over-time" solutions offered by companies like Block and Klarna.
The competitive landscape is expected to intensify due to the low barriers to entry in the pay-over-time industry. As new technologies emerge and financial giants come up with new strategies, Affirm faces the challenge of maintaining its market share. This competition puts pressure on the company to continually innovate and potentially alter its pricing to remain attractive to both merchants and consumers.
Estimates Favoring the Stock
The Zacks Consensus Estimate for fiscal 2024 earnings indicates a 40.7% year-over-year improvement, while the estimate for fiscal 2025 implies a 26.5% improvement. Over the past week, the estimates have remained stable. Moreover, the consensus mark for fiscal 2024 and fiscal 2025 revenues indicates 42.6% and 22.9% year-over-year growth, respectively.
Image Source: Zacks Investment Research
Stock Valuation
The stock is currently trading at a discount compared with the historical levels. It is trading at a forward 12-month price-to-sales multiple of 2.73 compared with the past three-year median of 4X. It is also lower than the S&P 500’s level of 4.96X.
Image Source: Zacks Investment Research
Factors Benefiting AFRM
Affirm boasts a strong merchant network. It continues to add merchant partners, which, in turn, boosts the usage of its financing products suite and brings higher merchant fees. This revenue component is earned from merchant partners in return for using the AFRM platform for processing transactions. In June 2024, it collaborated with Brittain Resorts & Hotels to offer flexible payment options, thereby enhancing customer convenience and expanding AFRM's retail partner network.
Besides, it uses cutting-edge technology and machine learning to deliver scalable products and quick integration for merchants. A booming BNPL market provides AFRM with the perfect opportunity to utilize its product suite. The space continues to witness widespread popularity as consumers seek installment payment options owing to the financial relief of not having to pay the entire amount at the time of checkout.
Strategic partnerships with well-established companies such as Evolve, Walmart and Liberty Travel are anticipated to enhance the company’s market presence further. Its solid financial position, supported by robust cash reserves and commendable cash-generating abilities, enables it to undertake uninterrupted business investments. It generated operating cash flows of $381.4 million in the first nine months of fiscal 2024 against cash used in operations of $31.6 million in the prior-year comparable period.
Wrapping Up
While Affirm faces near-term challenges, its strategic initiatives and cutting-edge technology platform could pave the way for recovery and sustained growth. Its improving profit estimates and an expanding BNPL industry inspire investor optimism. The decline in its share price sparks optimism while its attractive valuation is likely to convince investors to add the stock to their portfolio.
AFRM currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.