Affirm Holdings (NASDAQ: AFRM) has had a challenging year during a time when tight monetary policy from the Federal Reserve has put pressure on fintech companies generally. One analyst actually envisions Affirm Holdings stock as possibly going to zero, but this is probably too pessimistic. I am bullish on Affirm Holdings stock because the company’s platform offers shoppers useful payment options for the upcoming holiday season and because Affirm has a mutually beneficial arrangement with Amazon (NASDAQ: AMZN).
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Headquartered in San Francisco, Affirm Holdings is a fintech business that earns revenue from merchants by helping them facilitate financial transactions with customers. Affirm also generates revenue through interest-bearing transactions on its app/platform, as well as from interchange fees when customers use Affirm’s virtual card.
As we’ll discuss in a moment, there’s a financial expert who isn’t particularly optimistic about Affirm Holdings’ business prospects. The company could expand quickly, however, as Affirm has a partnership with an e-commerce leviathan and might get a timely boost during this year’s holiday shopping season.
One Financial Expert Accused Affirm Holdings of Being a “Zombie”
Is Affirm Holdings a “walking dead” kind of company? There’s at least one financial expert who seems to think so – and shockingly, he even set a potential price target of zero on AFRM stock.
Over the past few years, you might have heard some businesses being referred to as “zombie” companies. There’s no precise definition, but a zombie typically refers to a company that’s not profitable, doesn’t have enough capital to pay its bills, and is only being kept “alive” through constant infusions of investor capital.
Now, there’s no denying that the zombie label fits certain companies. Is Affirm Holdings a zombie, though? Apparently, independent equity research firm New Constructs’ CEO David Trainer added AFRM to his list of zombie stocks, so let’s see if his argument holds water.
Trainer cites Affirm Holdings’ cash-burn rate, which I’ll admit is alarming. “Even with $1.3 billion in cash and cash equivalents at the end of Fiscal 2022, Affirm’s cash balance can only sustain its 2022 cash burn rate for another 10 months or until April 2023,” Trainer calculated.
Trainer’s other primary issue with Affirm Holdings is that a high-interest-rate environment will make “buy now, pay later” or BNPL companies less competitive. As the company explains, Affirm “offers eligible consumers the ability to pay over time, surfacing customized biweekly and monthly payment plans for each purchase.”
There’s no denying that Affirm Holdings should monitor its cash burn and that the end of easy-money policy will present challenges for the company. Does all of this necessarily mean, however, that AFRM stock has a “significant risk of declining to $0 per share,” as Trainer asserts?
Holiday Shopping and Amazon Partnership Could Save AFRM Stock
Zero is an awfully low price target, and Trainer’s criticism might be too harsh. After all, the upcoming holiday season could show that the consumer is resilient despite high inflation and elevated interest rates. Furthermore, a partnership with Amazon should provide Affirm Holdings with a traffic and revenue boost.
Affirm Holdings’ research on American shoppers’ spending patterns might surprise and enlighten you as the holiday season approaches. Interestingly, 85% of Americans plan to buy physical gifts this year – though inflation is likely weighing on their minds and pocketbooks, as 78% intend to keep their spending under $1,000.
That self-imposed limit still leaves plenty of room to consume, but not everyone is fond of using traditional credit cards in 2022. According to Ashmi Pancholi, VP of Consumer Insights at Affirm Holdings, “nearly half as many shoppers [are] planning to use credit cards for gifts this year (35%) compared to last year (62%).” Is it possible that young, open-minded shoppers are leaving their old credit cards behind and availing themselves of Affirm’s flexible BNPL options?
It’s not only possible but highly probable now that Affirm Holdings is teaming up with a North American e-commerce giant. Affirm’s Canada-focused press release calls it “pay-over-time,” but BNPL is still an enticing consumer option even with a different name.
Reportedly, Affirm Holdings’ BNPL “payment option will be available during checkout to all eligible customers in both English and French” at Amazon.ca, the Canadian version of the Amazon platform. After hopefully getting approved with “a quick, free soft credit check that won’t impact their credit score,” eligible shoppers will be presented with payment options, including the ability to “split their purchases of $50 or more into simple monthly payments.”
Plus, here’s an added bonus you won’t hear very often from traditional credit-card companies: “Even if they’re late or miss a payment, a customer’s total payment amount will not increase, and they will not be charged a late or hidden fee.” Just this feature alone should be enough to get cost-conscious, fee-fearing customers interested in signing up with Affirm.
Is AFRM Stock a Buy or Sell, According to Analysts?
Turning to Wall Street, AFRM is a Moderate Buy based on nine Buys, three Holds, and two Sell ratings. The average Affirm Holdings price target is $33.18, implying 61.4% upside potential.
Conclusion: Should You Consider Affirm Holdings Stock?
Could Affirm Holdings stock actually go to zero? Sure, the company has its share of challenges, but the Amazon partnership suggests that there’s more room for upside than free-fall.
So, keep an eye on Affirm’s cash burn, but don’t give up on the company just yet. If Affirm can get more shoppers to cut up their credit cards and try out a more flexible payment option, AFRM stock could actually add a zero instead of going to zero.
