Has Time Run Out on Affirm Holdings?

The Buy Now, Pay Later (BNPL) formula became a big hit during the pandemic. This significantly increased the worth of many stocks in the fintech sector.

Affirm Holdings (AFRM) is one of the stocks that had capitalized on the BNPL phenomenon, and reaching a 52-week high of $176.65 back in November 2021, after going public in January 2021 at just $49.

However, this company was not immune to the tough times that were faced by the fintech and technology stocks by the end of the last year. Once widely touted as the U.S. market leader, Affirm Holdings has been bleeding extensively since the end of last year.

Yet, because Affirm Holdings has continued to post phenomenal numbers over the time, I am bullish about this stock’s progress.

By partnering with originating banks, this BNPL company enables consumers to pay for a purchase over time, and payments can usually be made in one to 48 months.

Notably, the company already has more than 168,000 merchant partners integrated on its platform.

The company’s share price has not been corresponding with its actual progress. However, things could be ripe for a reversal, and many analysts are confident that the company will be delivering good returns in the coming times.

Chris Brendler of D.A. Davidson has had a similar opinion about the Affirm Holdings stock and has a Buy rating on it. Brendler feels the company has a far more attractive risk-reward balance now after facing the massive sell-off.

Potential of BNPL market

Advances in artificial intelligence and machine learning have changed the way the financial sector operates. Innovations like cloud computing and blockchains have made the operations much more convenient and safer. 

For these reasons, the fintech sector and the BNPL market will not lose its advantage in the near future. This claim has been further solidified by an estimate made by the Bank of America, which states the BNPL industry is expected to grow 10x to 15x by 2025, and can potentially process up to $1 trillion in transactions. 

Affirm Holdings has been a big player in this BNPL market, and is therefore in a perfect position to benefit from the growth opportunities this market will be bringing in the coming times.

The fact that the company’s gross merchandise volume increased by 115% year-over-year, and that it added 160,000 new merchants to its platform along with growing the active consumers by 150% in Q2 2022, one can only imagine how much the company will be able to thrive when the market booms further.

Growing Revenues but Burning Cash

Affirm Holding’s revenue growth has been phenomenal over the period which has helped it attract the attention of a lot of investors. As per its Q2 2022 results, the company’s total revenue was recorded at $361 million, indicating a huge 77% year-over-year increase. Its total revenue less transaction costs also increased by 93%.

All of these were driven by the growth in gross merchandise volume, higher interest income from growth in loans held for investment, profits made from the sale of loans and the greater servicing income due to the higher scaling of its platform.

Despite that, the operating loss increased to $196.2 million compared to $26.8 million in the earlier year. Net loss came in at $159.7 million compared to $26.6 million recorded during the same period a year ago.

TipRanks gives AFRM a Moderate Buy consensus rating, based on eight Buys, six Holds, and one Sell assigned over the past three months.

The average Affirm Holdings price target is $69.87, suggesting 82% upside potential.

Affirm Holdings has a lot of potential and currently its shares have just started recovering from its 52-week low.

Its deals with giant companies have already helped it increase its annual gross merchant volume opportunity by a huge margin, and it expects a further 50% growth in its revenues this year.

The company might not be profitable now because it is still building its scale, but if it continues to progress at this pace, it might see profits soon.

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