Affirm Holdings, Inc. (AFRM) on Q3 2023 Results - Earnings Call Transcript

Affirm Holdings, Inc. (NASDAQ:AFRM) is a financial technology company that provides installment loans to consumers at the point of sale. It aims to offer a transparent and flexible alternative to traditional credit. Affirm competes with other fintech companies like Upstart Holdings, Inc. (UPST) and SoFi Technologies, Inc. (SOFI), as well as broader financial service platforms like Robinhood Markets, Inc. (HOOD) and Snowflake Inc. (SNOW).

In evaluating Affirm's financial performance, the Return on Invested Capital (ROIC) is a critical metric. Affirm's ROIC is -3.09%, which is significantly lower than its Weighted Average Cost of Capital (WACC) of 18.18%. This negative ROIC indicates that Affirm is not generating enough returns to cover its cost of capital, which is a concern for investors.

Comparing Affirm to its peers, Upstart Holdings has an even lower ROIC of -16.81% against a WACC of 14.98%, resulting in a ROIC to WACC ratio of -1.12. SoFi Technologies, on the other hand, has a ROIC of -0.17% and a WACC of 15.75%, leading to a slightly better ROIC to WACC ratio of -0.01. Both companies, like Affirm, are struggling to generate returns above their cost of capital.

Roblox Corporation and Snowflake Inc. also show negative ROICs of -30.41% and -24.13%, respectively, with WACCs of 11.00% and 9.37%. Their ROIC to WACC ratios are -2.76 and -2.58, indicating significant challenges in capital efficiency. However, Robinhood Markets stands out with a positive ROIC of 17.33% and a WACC of 12.86%, resulting in a ROIC to WACC ratio of 1.35, highlighting its effective capital utilization.

In summary, while Affirm and most of its peers are not covering their cost of capital, Robinhood Markets is an exception. Robinhood's ability to generate returns that exceed its cost of capital makes it a standout in terms of capital efficiency among these companies.

Affirm Holdings, Inc. (NASDAQ:AFRM) is a financial technology company that offers buy now, pay later (BNPL) services. It allows consumers to make purchases and pay for them over time with no hidden fees. Affirm competes with other fintech companies like Upstart Holdings, Inc. (UPST), SoFi Technologies, Inc. (SOFI), and traditional financial institutions.

In evaluating Affirm's financial performance, the Return on Invested Capital (ROIC) is a critical metric. Affirm's ROIC is -3.09%, which is significantly lower than its Weighted Average Cost of Capital (WACC) of 17.28%. This negative ROIC indicates that Affirm is not generating enough returns to cover its cost of capital, which is a concern for investors.

When comparing Affirm to its peers, Upstart Holdings has a ROIC of -20.60% and a WACC of 11.89%, resulting in a ROIC to WACC ratio of -1.73. SoFi Technologies, with a ROIC of -0.93% and a WACC of 12.46%, has a ratio of -0.07. Both companies, like Affirm, are not covering their cost of capital.

Roblox Corporation and Snowflake Inc. also show negative ROICs of -30.41% and -24.13%, respectively, with WACCs of 11.29% and 8.23%. Their ROIC to WACC ratios are -2.69 and -2.93, indicating inefficiencies in capital utilization.

Robinhood Markets, Inc. (HOOD) is the outlier among these companies, with a positive ROIC of 7.38% and a WACC of 12.40%, resulting in a ROIC to WACC ratio of 0.60. This suggests that Robinhood is effectively using its capital to generate returns that exceed its cost, setting it apart from its peers.

Affirm Holdings Inc. (NASDAQ:AFRM) delivered a standout second-quarter performance, far exceeding expectations as demand for its buy now, pay later (BNPL) services remained strong. The upbeat results sent shares soaring more than 21% intra-day today.

The San Francisco-based fintech company reported earnings per share of $0.23, a sharp contrast to analysts’ forecasts of a $0.16 per-share loss. Revenue also outpaced expectations, climbing to $866 million compared to the anticipated $805.62 million.

Affirm’s outlook reinforced investor optimism. The company projects third-quarter revenue between $755 million and $785 million, aligning closely with Wall Street’s estimate of $773.2 million. For fiscal 2025, Affirm expects revenue in the range of $3.13 billion to $3.19 billion, exceeding consensus projections of $3.11 billion.

The strong performance comes at a time when other fintech firms have struggled, prompting some investor caution leading up to the earnings release. However, Affirm demonstrated resilience, balancing rapid growth with solid profitability.

Affirm Holdings, Inc. (NASDAQ:AFRM) is a key player in the 'buy now, pay later' (BNPL) sector, offering consumers flexible payment options. The company competes with other BNPL providers like Afterpay and Klarna. On November 25, 2024, Robert O'Hare, Affirm's CFO, sold 79,039 shares of Class A Common Stock at $70.01 each, as reported on Form 4.

BofA Securities has shown confidence in Affirm by raising its price target to $74 and maintaining a Buy rating. This suggests that Affirm is well-positioned to capture more market share from its BNPL competitors. The stock's recent performance supports this view, with a current price of $69.35, up 4.21% or $2.80.

Affirm's stock has been on an upward trend for four weeks, partly due to the Federal Reserve's interest rate cuts and strategic partnerships with major companies. On Monday, the stock hit $62, its highest since February 2022, sparking discussions about potentially reaching $100. This optimism is reflected in the stock's recent high of $70.20.

At the FT Partners FinTech Conference on November 20, 2024, Affirm's Chief Revenue Officer, Wayne Pommen, discussed the company's strategies and performance. This event likely contributed to the positive sentiment around the stock, which has seen a trading volume of 8,142,052 shares today.

Affirm's market capitalization stands at approximately $21.78 billion, indicating its significant presence in the BNPL market. The stock's 52-week range shows a low of $22.25 and a high of $70.20, highlighting its recent strong performance and investor confidence in its future growth.

Wells Fargo analysts upgraded Affirm Holdings (NASDAQ:AFRM) to Overweight, raising the price target to $52 from $40, reflecting confidence in Affirm’s potential to capture an increasing share of eCommerce checkouts. As a result, shares closed with more than a 12% gain on Friday. With Affirm’s GAAP profitability expected soon, the stock valuation has become more appealing to investors.

The analysts highlighted Affirm’s advanced credit assessment and diverse funding programs, credit evaluation built into decision-making processes, and dynamic pricing that has established the company as a leading consumer lender, well-positioned for long-term 20%+ growth.

Affirm’s expanding growth opportunities, including its partnership with Apple Pay, are also noted as pivotal catalysts. Affirm could benefit from an easing rate cycle, which would improve growth potential and reduce funding costs. The Apple Pay Later initiative, expected to gain traction by mid-2025, presents additional potential, potentially boosting Affirm's 2026 Gross Merchandise Volume (GMV) by 10% and revenue by 8%.

Affirm Holdings (NASDAQ:AFRM) saw its shares jump over 7% intra-day today after BTIG analysts upgraded the stock from Neutral to Buy, citing the company's trajectory towards GAAP profitability and increasing dominance in point-of-sale financing. Analysts noted Affirm’s fiscal 2025 operating income margin is projected to reach 19%, closing in on American Express's 20% margin, with potential for Affirm to exceed this target as expense growth is expected to remain moderate.

The analysts highlighted Affirm’s increasing market share in the point-of-sale finance sector, fueled by rising demand for buy-now-pay-later (BNPL) solutions amid macroeconomic pressures, such as rising credit losses at traditional card companies like American Express. Affirm’s growing gross merchandise volume (GMV), supported by stronger merchant partnerships and consumer interest, is projected to grow 30% year-over-year in fiscal 2025, setting it apart from traditional credit card issuers.

The report also emphasized how broader shifts in consumer finance benefit Affirm, as traditional credit providers scale back due to adverse credit conditions. Additionally, new regulatory measures, including the Consumer Financial Protection Bureau’s updated late-fee rules, could make credit cards less appealing, potentially driving more consumers and merchants toward BNPL options. Affirm’s robust GMV growth, expanding margins, and strong retail partnerships, including with Walmart, reinforce BTIG’s bullish outlook on the company’s prospects.

• Barclays analyst Ramsey El-Assal has increased the price target for Affirm Holdings Inc. (NASDAQ:AFRM) to $54, indicating a potential upside of approximately 20.89%.
• Mizuho analysts have assigned Affirm an Outperform rating with an even higher price target of $65, reflecting optimism about the impact of lower interest rates on the company's business model.
• Despite a slight decrease of 0.58% in its stock price, Affirm's significant market capitalization and trading volume highlight its prominence in the fintech industry.

On Monday, September 23, 2024, Barclays analyst Ramsey El-Assal set a new price target for Affirm Holdings Inc. (NASDAQ:AFRM) at $54, up from its previous target, indicating a bullish stance on the stock with a potential upside of approximately 20.89% from its current trading price of $44.67. This adjustment reflects a growing confidence in Affirm's market position and future performance. Affirm, known for its "buy now, pay later" services, competes in a rapidly evolving fintech space, offering flexible payment solutions to consumers.

The optimism surrounding Affirm is not isolated to Barclays. Mizuho analysts have also expressed a positive outlook on the company, assigning it an Outperform rating with a price target of $65. This higher target suggests an even more bullish view on Affirm's potential, especially considering the benefits that lower interest rates could provide to its business model. Lower rates can reduce borrowing costs for companies like Affirm, potentially increasing their profitability and attractiveness to investors.

Despite these optimistic projections, Affirm's stock has seen a slight decrease of 0.58%, trading at $44.67. The stock's movement within the day ranged from a low of $44.63 to a high of $46.04, indicating some volatility. Over the past year, Affirm's shares have fluctuated significantly, with a low of $15.97 and a high of $52.48, showcasing the stock's potential for wide swings in price.

The company's market capitalization stands at approximately $13.9 billion, with a trading volume of about 7.35 million shares. This level of activity and valuation in the market underscores Affirm's significant presence in the fintech industry, despite the day-to-day fluctuations in its stock price. The interest from major financial analysts like those from Barclays and Mizuho highlights the potential they see in Affirm's business model and its ability to capitalize on the growing trend of flexible consumer financing.