Affirm Holdings Inc. (NASDAQ: AFRM) is a leader in the buy-now-pay-later (BNPL) industry. They provide installment loans to consumers, enabling them to split purchases into smaller payments. This is a win-win for merchants as they make more sales and customers as they can afford to purchase items that may have been previously too cost-prohibitive to pay for upfront. Historically, the stock has rallied into and during the holiday shopping season when BNPL volume is highest. Investors may plan to get in early this year on the potential run-up into and through the holidays.
Affirm operates in the business services sector and competes with Block Inc. (NYSE: SQ) Afterpay, PayPal Holdings Inc. (NASDAQ: PYPL), Sezzle Inc. (NASDAQ: SEZL), and Zip Co. Ltd. (OTCMKTS: ZIZTF).
The Boom and Burst of the Buy-Now-Pay-Later Industry
BNPL has exploded in popularity but faced plenty of scrutiny from consumer advocates claiming it encourages overspending and bad shopping habits. The business model has also come under fire due to rising delinquencies. It caused shares of Affirm to topple from a peak of $176.65 on Nov. 8, 2021. While the perceived lack of interest rates or fees and reporting to credit bureaus or credit checks is tempting, a good chunk of BNPL users tend to have lower credit scores and limited access to credit due to poor payment history. Gen-Z-ers tend to be the majority of BNPL users. This demographic is skeptical about credit cards, making them ripe for BNPL lenders.
Rising Fraud and Federal Oversight Impacting the BNPL Industry
This distinction may be having a blowback effect now as default rates climb. Additionally, rising fraud is becoming more than a thorn in the side of providers and merchants. BNPL companies are now being watched by the Consumer Financial Protection Bureau (CFPB) like credit card providers under the Truth in Lending Act. The CFPB confirmed that BNPL companies are indeed credit card providers that also provide the same legal protections and rights that apply to credit cards. Consumers have a right to dispute charges and demand a refund after returning the product to the merchant. BNPL companies must also provide billing statements as credit card companies do.
Apple Hands Off BNPL to Affirm
On June 11, 2024, Affirm confirmed that Apple Inc. (NASDAQ: AAPL) would leave the BNPL business and enable Apple Pay users to apply and pay over time with Affirm. This caused shares to surge 5% to $39.25. While this is great headline news for Affirm, the company does not expect the partnership to have a material impact on gross merchandise volume (GMV) or revenue in fiscal 2025.
Affirm Stock Forms a Descending Triangle Pattern
The daily candlestick chart AFRM illustrates a descending triangle pattern. This is a bearish pattern that forms after peaking at a swing high, which was on the AAPL announcement on June 11, 2024, to form lower highs on bounces. The descending trendline meets the lower flat-bottom trendline support at $29.36. As AFRM stock moves closer to the apex point, it will trigger a breakout above the descending trendline or a breakdown below the flat-bottom trendline. The relative strength index (RSI) doesn't provide any clues as it has been flat around the 45-band. Pullback support levels are $29.36, $27.53, $25.13 and $22.40.
Affirm's Financial Performance: Q3 Growth and Raised Q4 Guidance
Affirm reported a fiscal Q3 2024 EPS loss of 43 cents, which beat EPS estimates by 27 cents, as consensus estimates were for a loss of 70 cents. Revenues surged 51.2% YoY to $576 million, beating $550 million consensus estimates. Revenue Less Transaction Costs (RLTC) rose 38% YoY to $231 million, with RLTC as a percentage of GMV rising to 3.7%, up from 3.6% in the year-ago period. RLTC is a measure of its core earnings, measuring the revenue received, including merchant fees and interest income, minus all the costs associated with facilitating the loan transaction, such as processing fees and fraud prevention costs. GMV rose 36% YoY to $6.3 billion, marking the fourth consecutive quarter of growth.
Affirm raised its fiscal Q4 2024 revenue guidance to $585 million to $605 million versus $578.68 million consensus estimates. GMV is expected to be between $6.75 billion and $6.95 billion. Adjusted operating margin is expected to be between 15% and 17%. The company is also rolling out additional payment options, including Pay in 2 (installments) or Pay in 30 (days).
The Affirm Card Volume is Seasonal, But Lots More Features Are Coming
During its conference call, the subject of the Affirm Card was brought up. The Affirm Card is a physical and digital debit card that can be linked to a bank account. It can be used as a debit card and may have the BNPL option, which can be accessed through the app. The card is only available to qualified applicants; not every purchase may have a BNPL option. In fact, each purchase must be applied for BNPL through the mobile app. Plans with four installments have a 0% annual percentage rate (APR). The interest rate for installment plans beyond four payments can range from 0% to 36%.
Affirm CEO Max Levchin confirmed that the volume growth on the Affirm Card is entirely seasonal. They aren't promoting it aggressively yet, as they are experimenting with various rewards. Levchin confirmed it is "squarely trending towards a multi-billion dollar business." Levchin assured that they have a lot of features to roll out.
Target analyst ratings and price targets are at MarketBeat. The consensus analyst price target of $177.61 implies a 21.54% upside.
