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    Despite Recent Optimism, Affirm Holdings Inc. (AFRM) Should Be On Your Avoid List

    By Gule Rukhsar

    May 13,2022

    12:13 AM UTC

    Changing the game with its buy-now-pay-later offerings, Affirm Holdings Inc. (AFRM) is expected to continue growing as demand for alternative financing options is increasing day by day. On top of it, the company’s partnerships with Amazon and Shopify are proving exponential to its growth as well. However, with the continued decline in its share price with it now being down over 82% year to date, the stock does not have a “buy” rating from experts as of yet. Let’s have a look at what’s happening?

    Latest from AFRM

    Source: Fraedom

    On Thursday, May 13, 2022, the buy-now-pay-later company came out with a couple of news including its quarterly earnings and a contract extension with Shopify. Following this, AFRM surged up by a nice 33.54% in the after-hours while an active number of 13.24 million shares exchanged hands. This uptick valued the stock at a price of $24.09 apiece while the prior session had marked its latest low of $13.64 despite a 23.31% gain. Thus, Thursday brought relief to the stock from its losing streak over growing anxiety in the fintech sector and the hawkish Federal Reserve’s actions.

    AFRM’s Earnings Overview

    After the company cut back on its 2022 outlook in the previous earnings, investors had been worried but to their relief, the latest earnings report not only exceeded its own outlook but raised the outlook for the whole fiscal year.

    For the March-end fiscal third quarter, AFRM came out with total revenue of $355 million owing to an increased transaction of 10.5 million. Hence, the revenue grew by 54% while transactions vaulted 162%. The revenue surpassed the consensus estimate by 5.21% for the quarter marking a nice increase from the year-ago’s $230.67 million.

    Moreover, the operating loss widened to $226.6 million from the year earlier’s $209.3 million while the net loss shrunk to $54.7 million from $287.1 million. Subsequently, the earnings surprise was 57.78% as the company came out with a quarterly loss of $0.19 a share against the expected $0.45 per share. However, the adjusted operating income saw a decline of 18% as it reached $4.0 million.

    A big boost came in the number of active merchants as it surged up to 207,000 in the quarter from 12,000 and active consumers reported a stark increase of 137% to 12.7 million.

    Pact Extension with Shopify

    On top of the upbeat earnings, AFRM said on Thursday that it has expanded its partnership with Shopify over multiple years in the U.S. Thus, on top of being the exclusive pay-over-time provider for Shop Pay Installments, all eligible U.S. merchants offering the service will now have access to the company’s Adaptive CheckoutTM. AFRM’s solution provides biweekly and monthly payment options side-by-side in a single integrated checkout.

    AFRM’s Outlook

    Having posted upbeat quarterly earnings, the company now expects revenue of $345-$355 million for the ongoing quarter and $1,330-$1,340 million for the full fiscal year. In comparison, analysts are expecting $348.73 million and $1.32 billion in revenues for the current quarter and full year, respectively.

    Furthermore, AFRM is looking ahead to a GMV of $3.95-$4.05 billion for fiscal Q4 and $15.04-$15.14 billion for fiscal 2022. The fiscal Q3 GMV was $3.9 billion which grew by 73% YOY.

    How about the Market?

    The overall market conditions have been deteriorating at a fast pace lately. The threat of a looming recession is becoming real by the day as inflation continues to peak and interest rates are expected to rise further. This is all on top of the wider spread geopolitical and economic instability arising from the Russian invasion of Ukraine and China’s zero Covid policy.

    Last week, the Fed said to raise interest rates by a half-percentage point for curbing the worst inflation the U.S. has seen in the past 40 years. But this interest hike brought about such an increase for the first time in over two decades. Even more so, Fed Chairman Jerome Powel declared the possibility of an additional half-percentage point increase in the next few meetings.

    The Take-Away

    Given the continuous rise in the interest rate and the inflationary pressure, the economy might just tip into recession in the coming days. The already falling equities market is most likely to continue plunging down as investors sell off shares in order to save themselves some money and steer clear of expected losses. While this in itself indicates a further decline in prices of most stocks including AFRM, a further reason to avoid the stock, for now, is its neutral or sell rating by most experts and analysts. Even J.P. Morgan which started AFRM’s coverage this week has a neutral rating for the stock now. Also, analysts have even been cutting down their price target for the stock in the past few weeks as it has plunged by over 82% in the past six months.

    While the company has been showing exceptional growth in the emerging buy-now-pay-later market, it is still very far from achieving profitability.

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