Amidst a frenzy sparked by Block’s (SQ) staggering earnings performance, fintech investments have garnered unyielding attention for their growth potential. Sitting at the heart of this buzz is Affirm Holdings (AFRM), the purveyor of a flexible payment platform granting consumers the power to spread purchases over time, appealing predominantly to the youth and those navigating constrained credit options. Following a meteoric rise in 2023, where AFRM shares surged over 400%, market watchers now hold their breath as they dissect Affirm’s trajectory for the upcoming year. As we embark upon 2024, all eyes are locked on the company after it stole the headlines with impressive second-quarter earnings, surpassing expectations with a remarkable 48% spike in revenue to $591.1 million, coupled with a notable reduction in net losses.
Yet, post the 2023 stock surge, seasoned Wall Street experts are tempering expectations for further meteoric rises in AFRM’s stock price. The future of this fintech juggernaut appears somewhat curtailed, to say the least. Let’s delve into what the analysts predict for this financial technology upstart over the next 12 months.
The Rise and Fall of AFRM Stock
Following its exceptional performance in 2023, Affirm Holdings stock’s once-exhilarating momentum has faded in recent months. While the general equities market celebrated new highs last week, AFRM has descended more than 24% in 2024.
Even with its second-quarter 2024 earnings outshining consensus estimates, Wall Street remained unenthused about Affirm’s Q3 forecast. The company posted a loss per share of $0.54 in Q2 2024 – a marked improvement from the $1.10 per share loss in the corresponding quarter the previous year – while revenue surged by 48% year-over-year to hit the $591.1 million milestone.
Taking a peek into Q3, AFRM cautioned about nearly halving its adjusted operating margin from Q2 levels. Anticipating adjusted operating margins to dwindle to the 6% – 8% interval for the current quarter, a substantial drop from the 15.7% seen in Q2.
Illustrating the cost influxes that are squeezing margins, CFO Michael Linford shared during an analyst conference that, “I think the strength in this quarter’s results with respect to our unit economics and operating efficiency, give us license to be willing to add a little operating expense, whereas I think we’ve been very cautious to do that until we could demonstrate it.”
With a market capitalization hovering around $11.45 billion and an enterprise value of $14.17 billion, Affirm has solidified its stature as a key player in the fintech arena. However, the company reports a negative net income of $750 million over a trailing 12-month period. Despite this, Affirm’s revenue stands at $1.91 billion, with a gross profit of $1.18 billion, signaling potential profitability amid rapid revenue escalation.
Nonetheless, despite the YTD retreat in AFRM’s shares, they continue to command a premium price tag. Priced at 5.18 times the 2024 sales figure, Affirm’s valuation exceeds that of fintech counterparts like Upstart (UPST) and SoFi (SOFI).
The Engine Behind Affirm’s Growth
The forward march of the enterprise is fueled by strategic maneuvers poised to propel ongoing expansion. Foremost among these is Affirm’s drive to forge partnerships and venture into novel territories to unlock fresh revenue tributaries.
In a prime manifestation of this strategy, Affirm recently announced an exclusive pact with Evolve, a premier vacation rental platform. This partnership extends flexible financing options to Evolve’s clientele through Affirm, potentially lifting booking conversion rates and transaction volumes for both entities. This collaboration expands Affirm’s footprint in the flourishing travel sector while broadening its merchant network beyond retail boundaries.
Moreover, the forthcoming launch of Affirm Card is anticipated to usher in the company’s transition to a “neo bank” status, shifting Affirm from a provisional financing solution for high-value BNPL items to a point-of-sale payment mode for everyday buys.
These strategic tactics have ignited investor fervor, as evidenced by investment heavyweight Baillie Gifford’s acquisition of 1.4 million Affirm shares in December 2023, elevating its stake in the company to 8.45% of outstanding shares.
The Analysts’ Outlook on AFRM Stock
In general, analysts harbor a tepid outlook towards AFRM, awarding it a consensus “Hold” rating, with a mean price target of $34.50 – a notch below the stock’s Friday close at $36.98. Among the 19 analysts in coverage, 3 advocate a “Strong Buy,” 11 suggest “Hold,” 1 implies “Moderate Sell,” and 4 vouch for “Strong Sell.”
The company’s volatile earnings reception engendered mixed sentiments within this cohort. Dan Dolev from Mizuho Securities emerges as the chief enthusiast, dancing to the tune of the highest forecast with a Street-high $65 price target and a “Buy” endorsement, viewing the post-earnings slump as an opportunity. On the flip side, James Faucette of Morgan Stanley contends that Affirm’s “valuation is stretched,” assigning an “Underweight” tag with a $20 price projection. And then there’s Andrew Bauch from Wells Fargo, who categorizes AFRM as “Equal Weight,” dismissing valuation debates as “fruitless,” underscoring the absence of genuine public trading competitors for Affirm.
On balance, the Wall Street consensus envisages an approximate 6.7% retraction in AFRM from prevailing levels based on the average price target, whereas the Street-high target hints at an extravagant premium of almost 75%.
Decoding AFRM Stock’s Future
Like numerous other growth entities in this realm, AFRM’s stock sails on the wings of momentum, shrouded in the haze of unprofitability – rendering a precise valuation an elusive quarry. Nevertheless, with industry titans joining the fray and core fiscal metrics on the upswing, Affirm seems to be treading the right course. The anticipated favorable macroeconomic backdrop for this year might further bolster the stock’s narrative, positioning this fintech venture as a compelling prospect for investors willing to brave the undulating market waves.
On the publication date, Ebube Jones did not have (either directly or indirectly) any positions in the securities discussed in this piece. The information presented in this article is purely for informational purposes. For additional details, please refer to the Barchart Disclosure Policy here.
The viewpoints and opinions articulated here represent the author’s sole perspective and do not necessarily mirror those of Nasdaq, Inc.
