Affirm Stock Plummets on Missed Earnings

Barron's2022-11-09

Affirm shares plunged after the so-called buy now, pay later company posted a wider-than-expected loss for its fiscal 2023 first quarter.Investors are paying close attention to Affirm’s (ticker: AFRM)...

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Comments

SPOT_ON
2022-11-09
SPOT_ON
Ok
Tonyap
2022-11-09
Tonyap
Thanks
Jimmy365
2022-11-09
Jimmy365
Okok
Kitsonlin
2022-11-09
Kitsonlin
Morning
- Kitsonlin:
  up
Thonyaunn
2022-11-09
Thonyaunn
Gd
- MeowKitty:
  Great
MLFL
2022-11-09
MLFL
Good morning
- YaocH:
  A
- Kimoqi:
  hi

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So far, Affirm doesn’t see much weakness in the consumer, noting in Tuesday’s earnings report that “delinquency rates remain at or below prepandemic levels.”But even with that bit of good news, Affirm posted a loss of 86 cents a share on $362 million in revenue. Results slightly missed projections by analysts surveyed by FactSet who expected that Affirm would lose 84 cents a share on $364 million in revenue.Affirm shares plunged 15% in after-hours trading as investors were put off by the earnings miss as well as weaker-than-hoped-for guidance. The lender expects revenue of $400 million to $420 million in its fiscal second quarter and full-year revenue in a range of $1.6 billion to $1.675.Affirm’s model worked great when interest rates were near 0%, but that is not the case anymore. The Federal Reserve has raised he federal-funds rate to nearly 4%, up from around zero in March.More rate hikes are certainly coming. 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Shares changed hands at nearly $170 apiece in November 2021 as households, still living under pandemic restrictions, increasingly shopped online. Near-zero interest rates, which allowed Affirm to easily offer interest-free installment loans, also helped. As the business took off, more competitors edged in, including Block (SQ).But 2022 has been much less kind. Households are feeling squeezed by inflation, stoking fears that they may default on loans. Rising interest rates also increase Affirm’s financing costs for funding loans to consumers. And there is far more competition from fintechs, banks, and credit card networks like Mastercard (MA).Despite the headwinds, some analysts expect Affirm to manage through the risks, fueling a higher stock price.“Affirm has an opportunity to be a key financial service provider to the Gen Y/Z demo,” James Faucette, analyst at Morgan Stanley, wrote ahead of earnings. He does acknowledge that credit concerns will persist for a few quarters, but he thinks the company will power through. He rates the shares Overweight with a $53 price target.Analysts at J.P. Morgan have a Neutral rating on Affirm and a $26 price target. They note thatrecent results from PayPal Holdings (PYPL) and Block, which are also in the buy now, pay later space, show “fairly stable loss trends,” which should bode well for Affirm’s prospects. The $26 price target assumes a 15 times multiple on Affirm’s projected earnings over the next 12 months.“We believe AFRM is poised for strong volume growth, fueled by partnerships with Shopify and Amazon, but our bullishness is tempered by AFRM’s fairly unproven underwriting model and consumer credit concerns,” Reginald Smith, analyst at J.P. 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