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After a blowout earnings report from industry heavyweight Block (SQ) late in the week, fintech stocks continue to draw investor interest for their strong growth potential. One such company, Affirm Holdings (AFRM), operates a flexible payment platform that allows consumers to pay for purchases in installments over time, rather than all at once. This "buy now, pay later" (BNPL) model appeals to younger demographics and those with limited access to credit.
After a stellar performance in 2023, with AFRM stock delivering returns in excess of 400%, investors and analysts alike are keenly watching Affirm's trajectory from here. As we step into 2024, the company has already made headlines with its second-quarter earnings, which surpassed expectations. Revenue for the period soared to $591.1 million, a 48% increase from the same quarter the previous year, and net losses narrowed significantly.
However, after the stock's parabolic price gains in 2023, Wall Street experts seem to think additional upside for AFRM is limited, to say the least. Here's what analysts are expecting for this fintech stock over the next 12 months.
AFRM Stock Outperforms the Market
Following its breakout performance in 2023, the positive momentum in Affirm Holdings stock has slowed in recent months. While the broader equities market hit new highs last week, AFRM is down more than 24% so far in 2024.
Affirm recently reported second-quarter 2024 earnings that topped consensus estimates, but Wall Street was unimpressed with the fintech firm's Q3 guidance. For Q2 of 2024, AFRM posted a loss per share of $0.54 - much improved from its loss of $1.10 per share in the year-ago quarter - while revenue rose 48% year-over-year to $591.1 million.
However, looking ahead to Q3, AFRM warned that its adjusted operating margin would be cut nearly in half from Q2 levels. The fintech expects adjusted operating margins to arrive between 6% and 8% for the current quarter, down sharply from 15.7% in Q2.
On a conference call with analysts, CFO Michael Linford detailed the higher costs that are impacting margins, noting, “I think the strength in this quarter's results with respect to our unit economics and operating efficiency, give us license to be willing to add a little operating expense, whereas I think we've been very cautious to do that until we could demonstrate it.”
With a market capitalization of approximately $11.45 billion and enterprise value of $14.17 billion, Affirm has firmly established itself as a major player in the fintech space. However, the company has reported negative net income of $750 million on a trailing 12-month basis. Over the same time frame, Affirm reported revenue of $1.91 billion and a gross profit of $1.18 billion, signaling a path to potential profitability amidst rapid top-line growth.
That said, the shares remain priced at a premium, despite the YTD pullback in AFRM. The stock is valued at 5.18 times 2024 sales, which is a richer valuation than fintech peers like Upstart (UPST) and SoFi (SOFI).
What's Driving Growth at Affirm?
Going forward, the company's strategic initiatives could help to drive continued growth. Central among these is Affirm's focus on forging partnerships and expanding into new sectors to unlock additional revenue streams.
In a prime example of this approach, Affirm recently announced an exclusive alliance with Evolve, a leading vacation rental platform. This allows Evolve's customers flexible financing options through Affirm, potentially boosting booking conversion rates and transaction volumes for both companies. The partnership expands Affirm's presence in the high-growth travel industry, while diversifying its merchant portfolio beyond retail.
Further, the company's Affirm Card is expected to help steer the company's transition into “neo bank” status, as Affirm looks to transition from a short-term financing solution for big-ticket BNPL items into a point-of-sale payment method for everyday purchases.
These strategic moves have piqued investor interest, as evidenced by investment firm Baillie Gifford's purchase of 1.4 million Affirm shares in December 2023, which raised its stake in the company to 8.45% of outstanding shares.
What Do Analysts Expect for AFRM Stock?
Overall, analysts have a lukewarm outlook at best toward AFRM, which has a consensus “Hold” rating from analysts and a $34.50 mean price target - which is south of the stock's Friday close at $36.98. Out of 19 analysts in coverage, 3 recommend a “Strong Buy,” 11 suggest “Hold,” 1 says “Moderate Sell,” and 4 vote for “Strong Sell.”
The company's volatile earnings reaction drew some mixed opinions from this group. Dan Dolev from Mizuho Securities is the cheerleader with the highest hopes, assigning a Street-high $65 price target and a “Buy” rating on the shares, and calling the post-earnings weakness a buying opportunity.
Conversely, Morgan Stanley's James Faucette argued that Affirm's “valuation is stretched,” and rates the stock “Underweight” with a $20 price target. And then there's Andrew Bauch of Wells Fargo, who ranks AFRM at “Equal Weight" and says valuation debates are “fruitless,” since the brokerage doesn't see any true publicly traded peers for Affirm.
On balance, the consensus on Wall Street expects AFRM to pull back about 6.7% from current levels, based on the mean price target, while the Street-high target indicates a premium of nearly 75%.
The Bottom Line on AFRM Stock
Like many other growth names in this market, AFRM stock remains largely momentum driven, and is as yet unprofitable - making a fair valuation difficult to nail down. However, with big-name partners coming on board and key financial metrics improving, Affirm appears to be on the right path. An improving macroeconomic backdrop this year could further help the stock's case, making this a fintech play worth considering for investors who can stomach the potential volatility.
On the date of publication, Ebube Jones 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.
