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Affirm Stock Soars 72% in a Year: Is It the Right Time to Invest?
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Affirm Holdings, Inc.’s (AFRM - Free Report) shares have surged 72.4% in the past year compared with the industry’s 4.1% growth. It has also outperformed the broader Zacks Business Services sector’s 19.8% rise and the S&P 500’s 22.4% increase in the said time frame. The company has been benefiting on the back of an expanding buy-now-pay-later (BNPL) market, advanced risk assessment technology and merchant partnership growth. It has a market cap of $12.5 billion.
Closing at $40.24 in the last trading session, the stock is trading above its 50-day and 200-day moving averages, indicating solid upward momentum.
Image Source: Zacks Investment Research
Growth Drivers for AFRM
Affirm's proprietary technology leverages modern tools like machine learning and Artificial Intelligence, enabling it to offer a robust platform that enhances the payment experience for consumers and merchants alike. The ability to seamlessly integrate its services into a wide range of merchant operations, from small online retailers to large enterprises, underpins its adaptability and appeal across the commercial spectrum. This technical prowess facilitates rapid transaction assessments and the customization of financial products, ensuring a smooth user experience and fostering merchant loyalty.
The company's approach to risk management and credit underwriting sets it apart from traditional financial institutions. Utilizing a unique risk model that incorporates extensive data analytics, including transaction-level insights from approximately 215 million loans, Affirm can tailor its financial products to meet diverse consumer needs while maintaining low fraud rates and high approval rates.
Affirm's business model promotes strong network effects, which are amplified with each new merchant addition to its platform. This, in turn, boosts the usage of its financing products suite and brings higher merchant fees. This revenue component is earned from merchant partners (or integrated merchants) in return for using the AFRM platform for processing transactions. As of June 30, 2024, Affirm boasted around 303,000 active merchants and a substantial base of repeat consumers, facilitating $26.6 billion in gross merchandise volume in the fiscal year.
A booming BNPL market presents an ideal opportunity for AFRM to leverage its diverse product offerings. The sector continues to gain traction as consumers increasingly opt for installment payment solutions. Affirm’s partnership with Apple, announced in June 2024, will bring its BNPL solutions to the latter’s customers later this year. This, in turn, is expected to enhance the addressable market size and transactions for Affirm.
AFRM's strong financial standing, underscored by significant cash reserves and impressive cash flow capabilities, positions it well to pursue ongoing business investments. Management expects to achieve operating income profitability on a GAAP basis in the fourth quarter of fiscal 2025.
Estimate Revisions Favor Affirm
The Zacks Consensus Estimate for fiscal 2025 earnings indicates a 50.9% year-over-year improvement while the estimate for fiscal 2026 earnings implies an increase of 147.6%. AFRM’s fiscal 2025 earnings have witnessed five upward estimate revisions during the past 30 days. Moreover, the consensus mark for fiscal 2025 and 2026 revenues indicates 29.6% and 21.3% year-over-year growth, respectively.
Image Source: Zacks Investment Research
Challenges for AFRM’s Business
As a provider of digital payment solutions, AFRM's investment in technology is crucial to remain competitive in the rapidly evolving digital era, resulting in substantial expenses related to technology and data analytics. Funding costs escalated 88% year over year in fiscal 2024, primarily due to rising benchmark interest rates and an expansion in funding debt and notes issued by securitization trusts. These escalating expenses are exerting extra pressure on the company’s ability to sustain profitability.
Affirm's technology platform competes directly with established digital payment solutions, including credit and debit cards from major financial institutions, and payment offerings from Visa (V - Free Report) and Mastercard (MA - Free Report) , as well as mobile wallets like PayPal (PYPL - Free Report) and other "pay-over-time" solutions from companies such as Block and Klarna. Operating in such a competitive landscape is likely pose several adverse effects on Affirm, such as pressure on margins as well as increased marketing and customer acquisition costs.
Affirm’s Valuation
From a valuation perspective, Affirm appears relatively expensive. The company is trading at a forward 12-month price-to-sales multiple of 3.99X, a tad higher than its four-year median of 3.98X.
Image Source: Zacks Investment Research
Wrapping Up
Investors considering Affirm should weigh its robust technological foundation and significant market opportunity in the expanding BNPL sector against its growing operational costs and competitive pressures. Its innovative risk management and new merchant additions support a strong market position and revenue growth through high merchant fees. Although its valuation is higher than the industry average, its improving profit estimates inspire investor optimism. Its strong network effects present a lucrative opportunity for investors to add the stock to their portfolio.
Image: Bigstock
Affirm Stock Soars 72% in a Year: Is It the Right Time to Invest?
Affirm Holdings, Inc.’s (AFRM - Free Report) shares have surged 72.4% in the past year compared with the industry’s 4.1% growth. It has also outperformed the broader Zacks Business Services sector’s 19.8% rise and the S&P 500’s 22.4% increase in the said time frame. The company has been benefiting on the back of an expanding buy-now-pay-later (BNPL) market, advanced risk assessment technology and merchant partnership growth. It has a market cap of $12.5 billion.
Closing at $40.24 in the last trading session, the stock is trading above its 50-day and 200-day moving averages, indicating solid upward momentum.
Image Source: Zacks Investment Research
Growth Drivers for AFRM
Affirm's proprietary technology leverages modern tools like machine learning and Artificial Intelligence, enabling it to offer a robust platform that enhances the payment experience for consumers and merchants alike. The ability to seamlessly integrate its services into a wide range of merchant operations, from small online retailers to large enterprises, underpins its adaptability and appeal across the commercial spectrum. This technical prowess facilitates rapid transaction assessments and the customization of financial products, ensuring a smooth user experience and fostering merchant loyalty.
The company's approach to risk management and credit underwriting sets it apart from traditional financial institutions. Utilizing a unique risk model that incorporates extensive data analytics, including transaction-level insights from approximately 215 million loans, Affirm can tailor its financial products to meet diverse consumer needs while maintaining low fraud rates and high approval rates.
Affirm's business model promotes strong network effects, which are amplified with each new merchant addition to its platform. This, in turn, boosts the usage of its financing products suite and brings higher merchant fees. This revenue component is earned from merchant partners (or integrated merchants) in return for using the AFRM platform for processing transactions. As of June 30, 2024, Affirm boasted around 303,000 active merchants and a substantial base of repeat consumers, facilitating $26.6 billion in gross merchandise volume in the fiscal year.
A booming BNPL market presents an ideal opportunity for AFRM to leverage its diverse product offerings. The sector continues to gain traction as consumers increasingly opt for installment payment solutions. Affirm’s partnership with Apple, announced in June 2024, will bring its BNPL solutions to the latter’s customers later this year. This, in turn, is expected to enhance the addressable market size and transactions for Affirm.
AFRM's strong financial standing, underscored by significant cash reserves and impressive cash flow capabilities, positions it well to pursue ongoing business investments. Management expects to achieve operating income profitability on a GAAP basis in the fourth quarter of fiscal 2025.
Estimate Revisions Favor Affirm
The Zacks Consensus Estimate for fiscal 2025 earnings indicates a 50.9% year-over-year improvement while the estimate for fiscal 2026 earnings implies an increase of 147.6%. AFRM’s fiscal 2025 earnings have witnessed five upward estimate revisions during the past 30 days. Moreover, the consensus mark for fiscal 2025 and 2026 revenues indicates 29.6% and 21.3% year-over-year growth, respectively.
Image Source: Zacks Investment Research
Challenges for AFRM’s Business
As a provider of digital payment solutions, AFRM's investment in technology is crucial to remain competitive in the rapidly evolving digital era, resulting in substantial expenses related to technology and data analytics. Funding costs escalated 88% year over year in fiscal 2024, primarily due to rising benchmark interest rates and an expansion in funding debt and notes issued by securitization trusts. These escalating expenses are exerting extra pressure on the company’s ability to sustain profitability.
Affirm's technology platform competes directly with established digital payment solutions, including credit and debit cards from major financial institutions, and payment offerings from Visa (V - Free Report) and Mastercard (MA - Free Report) , as well as mobile wallets like PayPal (PYPL - Free Report) and other "pay-over-time" solutions from companies such as Block and Klarna. Operating in such a competitive landscape is likely pose several adverse effects on Affirm, such as pressure on margins as well as increased marketing and customer acquisition costs.
Affirm’s Valuation
From a valuation perspective, Affirm appears relatively expensive. The company is trading at a forward 12-month price-to-sales multiple of 3.99X, a tad higher than its four-year median of 3.98X.
Image Source: Zacks Investment Research
Wrapping Up
Investors considering Affirm should weigh its robust technological foundation and significant market opportunity in the expanding BNPL sector against its growing operational costs and competitive pressures. Its innovative risk management and new merchant additions support a strong market position and revenue growth through high merchant fees. Although its valuation is higher than the industry average, its improving profit estimates inspire investor optimism. Its strong network effects present a lucrative opportunity for investors to add the stock to their portfolio.
AFRM currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.