About a year ago, Affirm Holdings Inc. was sitting pretty. The company achieved a peak market value of $46.8 billion on Nov. 4, 2021, and it went on to announce an expanded partnership with Amazon.com Inc.
AMZN,
several days later.
A lot has changed since then. Affirm’s stock
AFRM,
is off 90% over the past year, and its market value has plunged to a recent $4.5 billion amid questions about the long-term opportunity for buy-now-pay-later services as well as the credit performance of the company’s business in an uncertain economic environment.
Affirm will look to get back on track Tuesday afternoon when it reports fiscal first-quarter results. Here’s what to expect from that report.
What to expect
Earnings: Analysts tracked by FactSet expect Affirm to post a loss per share of 84 cents in accordance with generally accepted accounting principles (GAAP), compared with a loss of $1.13 a share on the metric a year before. According to Estimize, which crowdsources projections from hedge funds, academics, and others, the average projection is also for an 84-cent loss per share.
Analysts also anticipate a $41 million adjusted operating loss, compared with a $45 million loss on the metric a year prior.
Revenue: The FactSet consensus calls for $360 million in revenue, up from $269 million a year earlier. On Estimize, the average projection is for $363 million in revenue.
Stock movement: Affirm shares tend to swing wildly after the company posts results. Shares of Affirm have fallen in four of the sessions immediately following the company’s seven reports since it went public. The stock has made double-digit moves on a percentage basis following six of those seven reports.
Of the 19 analysts tracked by FactSet who cover Affirm’s stock, nine have buy ratings, seven have hold ratings, and three have sell ratings, with an average price target of $30.
The stock has declined 84% so far in 2022 as the S&P 500
SPX,
has fallen 20%.
What to watch for
While Affirm’s management has recently emphasized that the company’s loans are shorter-term in nature, Wall Street will be dialed in on credit trends in the upcoming report.
“While C3Q credit performance was mostly positive across large banks and card issuers, investors will be keenly focused on AFRM’s metrics,” Bank of America’s Jason Kupferberg wrote in a recent note to clients. “Details on how the company is managing the impacts of a higher interest-rate environment, tightness of the credit box, and funding costs will also be key topics.”
Jefferies analyst John Hecht agreed that funding for the loans will also be a hot issue in the report.
“We believe there are expectations that GMV [gross merchandise volume] may come in higher than consensus estimates based on monthly user activity data, but we believe the main focus for investors in AFRM will be credit and funding, given the rapid rate of delinquency increases seen in ABS [asset-backed security] vehicles and the possibility that funding markets will constrain the company’s growth, if not hurt profitability due to higher funding costs,” Hecht wrote.
He also noted that “[d]emand for consumer loan-backed debt has diminished as investors question how long the U.S. consumer’s financial health can remain strong in the context of high inflation and rising rates.”
Though Morgan Stanley’s James Faucette is bullish on Affirm’s stock, he acknowledged that it could take some time before many others on Wall Street come around to such a stance.
“We think most will probably wait for credit deterioration to bottom before becoming more constructive on the stock,” he wrote. “In fact, we continue to think it will take several quarters of consistent outperformance on loan originations, credit metrics, and new capital/funding costs for investors to fully commit to our bullish thesis on AFRM, which is based on a 12-18-month horizon, during which time we think many of the uncertainties around the macro will have played out.”
