Affirm stock price analysis: to go beast mode as golden cross forms

Affirm (AFRM) stock has crawled back in the past few weeks, rising from the August low of $22.2 to $47, a 112% increase. It has also soared by 425% from its lowest level in 2023, making it one of the best-performing fintech companies in the US.

Rise of BNPL

Affirm is a top name in the fast-growing Buy Now Pay Later (BNPL), which has drastically changed and disrupted the financial services industry in the past few years.

The industry was estimated at $378 billion in 2023, and will continue seeing double-digit growth in the next decade.

Many consumers see BNPL as a better alternative to credit cards, which charge substantially high interest rates and late fees.

In Affirm’s case, the company does not charge any interest for most payments. Instead, most customers buy and pay in four equal installments.

It makes money by charging companies a commission for all sales it processes provided that the customer pays back the money in four bi-weekly installments. It also has interest-bearing installment loans.

Affirm has grown rapidly over the years as it continued to add more companies as merchants. The most important addition was Amazon, the biggest e-commerce company with millions of sellers. It also has a partnership with Walmart, the biggest retailer globally.

A key challenge that Affirm faces is that the industry has become highly competitive, with firms like AfterPay, Klarna, and Zip vying for market share in the US and other countries.

Its benefit, however, is that it has a sizable market share in the US. Also, the business has some substantial barriers to entry, making it more difficult for more companies to get in.

Affirm’s business is growing

Affirm has become one of the fastest-growing fintech companies in the US. Its active customers have grown to over 18.6 million, up from 15.6 million in June last year. This is notable for a company that had 14 million customers in the fourth quarter of 2022.

Affirm has also continued to add more merchants in its platform. It ended the last quarter with 303k merchants, up from 234k in the fourth-quarter of 2022. This trend will likely continue in the coming years as more businesses embrace the trend.

Affirm’s annual revenue has risen from $509 million in 2020 to over $2.32 billion in the last financial year. Most of this growth accelerated during the Covid-19 pandemic when most customers turned to BNPL platforms for their checkouts.

The most recent financial results revealed that Affirm’s gross merchandise volume (GMV) rose to $7.2 billion, up from $5.5 billion in the same period last year.

Active customers soared to 18.6 million, while the number of transactions per customer rose to 4.9.

Affirm’s revenues rose to over $659 million in the last quarter, up from $446 million in the same quarter last year.

The management expects that GMV in Q1’254 will be between $7.1 billion and $7.4 billion, while its revenue will be between $640 million and $670 million. Its adjusted operating margin will be between 14% and 16%.

Affirm has never been profitable. Nonetheless, the company is narrowing its losses. Its annual loss moved from $985 million in 2023 to $517 million. The most recent quarterly net loss narrowed from $206 million to over $45 million.

Most importantly, Affirm is adding more services to its product, including the Affirm Money Account, where people can save and earn returns.

Affirm’s earnings ahead

Affirm stock is now reacting to a few factors. First, it is reacting to the actions by the Federal Reserve, which has started cutting interest rates. Lower rates could incentivise more consumer spending in the coming years, benefiting the biggest players in the BNPL industry.

Second, the company will publish its quarterly earnings on November 8. According to Yahoo Finance, analysts expect that Affirm’s revenue will be $663 million, up by 33% from the same period last year.

For the year, its revenue is expected to be $3.02 billion followed by $3.67 billion in the next financial year. If the trend continues, it means that Affirm’s annual revenue will get to $5 billion in the next few years.

Most analysts are optimistic about the Affirm stock price. Wells Fargo upgraded it to overweight, while Morgan Stanley and BTIG upgraded it to equal-weight and buy, respectively.