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Affirm Holdings Is Losing Out In Profits

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Affirm Holdings (NASDAQ:AFRM) keeps growing, but its stock keeps sinking. Shares have lost nearly 75% of their value, just since the first of the year. The November high of $168/share seems a long time ago. Affirm was expected to open March 15 at a little over $26/share, a market capitalization of $9.4 billion.

Affirm (AFRM) logo displayed on a smartphone
Affirm (AFRM) logo displayed on a smartphone

Source: Piotr Swat / Shutterstock.com

The plunge continued even after Affirm reported quarterly numbers that were considered pretty good on Feb. 10.

The Buy Now, Pay Later (BNPL) company lost $158 million, 57 cents per share, on revenue of $361 million. Revenue was up 77% from a year ago, but marketing and administrative costs sent losses up six-fold.

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Without Putin’s War, those numbers would not have crashed the stock. But wars are unhealthy for economies and other living things.

Can Affirm Survive?

Affirm should be able to survive. It had $2.57 billion in cash on the books at the end of December. Total assets were nearly $7 billion as it held $2.45 billion in loans.

There was a loan loss reserve of $158 million. But there is concern over whether that’s enough, given what’s happening in the economy.

What’s happening is probably a recession. It may be short, but it will be steep, as Russian money disappears and people hunker down against the threat of Armageddon.

This is still not reflected in analyst views at Tipranks. 14 analysts have an average price target of $79, more than three times Affirm’s current price. Just one is telling investors to take losses.

Analysts are taking down their price targets, but too slowly to be of use. Barclay’s (NYSE:BCS) is down to $65. Mizuho Financial Group (NYSE:MFG) is down to $77. Both targets are a month old .

Affirm itself says it’s trying to adjust, switching from loans on Peloton (NASDAQ:PTON) bikes, which at one point were one-third of its portfolio, to smaller buys at Shopify (NASDAQ:SHOP) sites. But that seems silly. If someone is taking out a 4-month loan to buy a $100 item, are they really a good credit risk?

The BNPL Problem

When times were good, BNPL plans looked like a great way to grab market share from banks and processors like Visa (NYSE:V). Consumers could be given a better deal as well. Merchants didn’t mind taking a 10% discount if they were getting big money fast.

But there are always risks when you’re loaning money. Affirm realized last year that was what it was doing. While 43% of its loans last year carried a 0% interest rate, Affirm’s risk analysis hit others with rates of up to 30%.

I expressed concern about Affirm back in November, worried it was taking market cap away from credit card companies. At the time, Visa stock seemed to be plunging in the face of Affirm’s rise. Now that looks like a blip. Visa stock is down 11% over the last year. Affirm is down by 67%.

The Bottom Line

I didn’t predict this war, or its financial upheaval.

But I did get Affirm right. I wrote in December a hangover was coming for BNPL. Such companies aren’t regulated the way banks are. They can take on enormous risks without government being the wiser.

While Affirm founder Max Levchin said last year he supports new rules to improve disclosure and stamp out hidden charges, he also said he was comfortable with the company’s operating losses. The market no longer is.

Levchin is listed as being worth $2.2 billion by Forbes. Based on his 11% stake in Affirm that may be closer to $850 million. He may also have bigger concerns. He was born in Ukraine, emigrating to Chicago as a teenager in 1991.

On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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