Valued at $14.5 billion by market cap, Affirm (AFRM) operates a platform for digital and mobile-first commerce, which includes point-of-sale payment solutions, merchant commerce solutions, and a consumer-focused application. Its payments network and partnerships with an originating bank allow consumers to pay for a purchase over time. Affirm has partnered with merchants across diverse industries, including sporting goods, furniture, travel, apparel, accessories, jewelry, and consumer electronics.
Founded in 2012, Affirm went public in 2021 for $49 per share. It touched a record high of $165 in November 2021 before falling to a record low of $9 in early 2023.
Today, the fintech stock trades at $49.18, and has gained more than 170% in the last 12 months.
Let’s see if you should invest in Affirm stock at the current valuation.
Morgan Stanley is Bullish on Affirm Stock
Last week, investment bank Morgan Stanley upgraded Affirm Holdings, citing the fintech operator's strategies to start attracting higher-income customers. The brokerage firm upgraded AFRM stock to “equal-weight” from “underweight,” and increased the stock's price target to $37 from $20.
Notably, Morgan Stanley had earlier raised questions over Affirm’s widening customer base, which was skewed towards lower-income customers with less-than-attractive credit scores.
According to Morgan Stanley, Affirm’s integration with Apple Pay has enabled it to attract a younger but higher-income demographic using Apple (AAPL) devices. Apple Pay users can also now apply for loans directly through Affirm via integrated devices, such as iPhones and iPads.
Morgan Stanley expects the partnership to generate close to $2 billion in transaction volume by fiscal 2026 (ending in June), above its earlier estimate of between $1 billion and $1.5 billion.
The firm added that higher-income customers are typically more responsive to Affirm’s promotional financing offers. Morgan Stanley expects Affirm to increase these promotional offerings in fiscal 2025, leading to higher customer engagement rates among higher-income users.
Separately, brokerage firm Mizuho expects the new Apple Pay partnership to add $12 billion to Affirm’s total addressable market. And earlier today, Wedbush upped AFRM to “neutral” from “underperform,” citing expected benefits from lower interest rates.
Affirm Continues to Expand
In fiscal Q4 of 2024, Affirm reported revenue of $659 million, an increase of 48% year over year. Its losses narrowed to $45.1 million from $206 million in the last 12 months. Affirm beat revenue estimates in Q4 and reported a narrower-than-expected loss in the June quarter. Moreover, the company surprised investors after stating it could report a GAAP (generally accepted accounting principles) operating income in fiscal 2025.
For fiscal Q1 of 2025, it forecasts revenue between $640 million and $670 million, higher than consensus estimates of $625 million. In the year-ago period, it reported revenue of $496.55 million.
The possibility of multiple interest rate hikes should act as a tailwind for Affirm, as it would reduce the fintech entity's funding costs. However, analysts remain wary of the ongoing slowdown in consumer spending, which could hamper Affirm’s profitability goals in the near term.
What's the Forecast for AFRM Stock?
Analysts expect Affirm to increase sales from $2.32 billion in fiscal 2024 to $3 billion in 2025 and $3.7 billion in 2026. The company is forecast to end 2026 with adjusted earnings per share of $0.40, compared to a loss of $1.67 per share in 2024.
Out of the 19 analysts covering AFRM stock, seven recommend “strong buy,” 10 recommend “hold,” and two recommend “strong sell.” The stock is now a “moderate buy” on Wall Street, up from a consensus “hold” one month ago.
The average 12-month target price for AFRM stock is $44, which represents a discount to Monday's closing price. The Street-high target of $68 implies an expected premium of 38%.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
