Affirm Stock Forecast: Affirm Falls 40% Post Q2 Results. Is it a Buy After the Crash?

Affirm Stock Forecast: Affirm Falls 40% Post Q2 Results. Is it a Buy After the Crash?
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Feb 21st, Affirm Stock Forecast: Shares of AFRM are expected to trade between $ 39 and $ 45.

Affirm Stock Forecast: Latest Affirm Stock Price: Affirm Holdings closed 0.9% lower at $ 37.3 on Friday.

Affirm works on the concept of buy now pay later. Consumers are given a variety of options to pay for the purchase – Weekly Payments, Monthly Payments and so on.

Screenshot 2022 02 20 at 7.45.06 PM

Affirm Holding Inc strikes nicely at the above concept and also charges a small transaction fee from the merchants merchants. Affirm journey since IPO on Nasdaq under the ticker symbol AFRM has been a roller coaster ride. It began trading on 15th January 2021 at $117 and touched a high of $164.23 on 5th November and since then it was falling down in bit and pieces. Q2 results on 10th February 2022 acted as major catalyst and resulted in nearly 56 percent drop from $74.68 on Feb 9th to $37.33 on Feb 18th

Affirm Stock Forecast: Performance chart

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Affirm Stock Performance
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Let us look at the bull and bear case for Affirm Holdings Inc going forward, especially for 2022 and then conclude whether shares are meant to buy, sell or hold.

Affirm Stock Forecast: Bear Case

  1. Staggering losses in last six months – Since Affirm reported its Q2 results, there are two lenses to look into the results. There are fantastic growth numbers in terms of customers and merchants but the company is not profitable since its inception. The performance in terms of profitability seems to be worsening with every quarter. Affirm reported a loss of nearly $160 million, which accounts for $0.55 earnings per share in the results. Analysts had projected a loss of $0.34 EPS. During the last six months, the company has lost $469 million.
  2. Poor forecast for full year 2022– The Total volume of transactions on Affirm’s platform called gross merchandise volume (GMV) is at $7.1 billion for the first two quarters. Still the management has projected only $14.78 billon as the forecast for 2022 full year. Investors were hoping for better numbers after partnerships with Amazon and Shopify, and are disappointed seeing lack of near term growth.
  3. Fierce Competition– Affirm Holdings Inc is not the only player in the BNPL space. PayPal (Nasdaq: PYPL) has launched its BNPL services back in 2020. Block, Afterpay and Klarna are other companies in this space. Also PayPal and Block have the capacity to reduce the rates to attract customers and merchants and that can eat further in both sales and margins of Affirm
  4. Fear of Interest rate hike: Since the fag end of November, there is a perpetual fear of interest rate hike from the Fed on account of the rising inflation. But what it means for Affirm is that they will have to increase their interest rates to keep up with the market. Also Affirm may need to increase their fees to narrow their losses which in turn may make their proposition less attractive.
  5. Subprime borrowers – BNPL as a concept is meant for subprime microloans for lower income consumers, and many among them do not have a credit score required for traditional credit cards. Betting on these consumers in a rising inflation scenario increases the risk. Also, a recent survey found that 34% of BNPL users have defaulted on at least one of their payments. Affirm also needs to tighten its provisions on credit losses which have increased from 17% to 24% between the first quarters of 2021 and 2022.

Affirm Holdings Inc: Bull Case

  1. Big Partners: Affirm Holdings Inc can be at the doorstep of an accelerated growth. Its partnerships with Amazon, Shopify, Target and Walmart can take it to another level of growth trajectory in next five years. For instance, Amazon started to block payments from Visa cards in UK, sometimes after the deal with Affirm and blamed Visa’s high swipe charges. It signals that there is a very good opportunity to disrupt traditional credit card market.
  2. Number of Consumers and Merchants soared: Affirm has surpassed analysts’ estimates on growth figures. Reportedly, merchants on Affirm platform increased 64% from previous quarter and currently stands at 168,000. Also, the company declared that it was part of 1.6% of online transactions for 2021 Black Friday and Cyber Monday. Number of consumers have increased 150% YoY in Q2 2021 and now stands at 11.2 million.
  3. Attractive Valuation: As Affirm Holdings Inc shares have tanked from mid 70s to 30s recently and are down 70% from their high of $174, it trades at forward price to sales ratio of below 10. The valuation seem reasonable even after considering all the likely hiccups in the near future.
  4. Future growth possibility– According to research from Grand View, BNPL markets can expand at a compound growth rate of 22.4% from 2021 to 2028 and that shows that it is just starting for companies like Affirm. Even if Affirm sticks to its growth rate, revenue can increase four times from $870.5 million in fiscal 2021 to $3.6 billion in 2028. When economics of scale kicks in, profitability is expected to improve.

Affirm Stock Forecast: Buy, Sell or Hold for 2022

We need to understand the business model for taking this decision. Small percentage of delinquencies cannot be avoided in a consumer credit business, but to report increasing losses quarter after quarter is not good for any company. For Affirm Holdings Inc, operating costs more than doubled in this quarter to $557 million, driven by increased expenses on advertisement, marketing and administrative expenses.

The long term growth opportunity cannot be doubted for BNPL as a concept and Affirm as a company. Partnerships with Amazon, Shopify and many others is a step towards unmatched growth five years down the lane. But if we look only for 2022, Affirm cannot be bought for short term especially in an increasing interest rate environment and bad global cues, thanks to Russia-Ukraine war.

Affirm Holdings Inc is a stock for long term investors and is a good buy considering recent steep downfall, but not a smart buy for six months or one year down the lane.

Vineet Agarwal

Affirm Stock Forecast

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Note: Crowdwisdom360 collates Predictions and data from all over the net and has no in-house view on the likely trends in the Stocks or Crypto Coins. Please consult a registered investment advisor to guide you on your financial decisions.

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