Investors in Affirm (AFRM) had their buy thesis denied (according to Merriam-Webster, that's the opposite of "affirm"), when the popular buy now, pay later (BNPL) company reported a sizeable Q2 2022 "earnings miss" midday.
Affirm was supposed to lose $0.38 per share on sales of $328.8 million for its fiscal second quarter, but the company reported a $0.57 per share loss despite doing $361 million in sales instead. When that news broke, investors sold off Affirm stock in droves, sending the shares plunging 21.4% by the end of the day (and then down another 10% in pre-market trading Friday).
Apparently unaware of how investors were reacting to its news, Affirm plunged blithely ahead with its report, however, with CEO Max Levchin boasting that "Affirm's strong growth accelerated this quarter" and exceeded the company's own outlook. Affirm said it "more than doubled gross merchandise volume year over year" and "added nearly seven million active consumers to our network, while enabling 168,000 merchant partners to better serve their customers."
All of which may be true -- but none of which changes the fact that Affirm lost money by the bucketload during the quarter. And management's latest guidance predicts that Affirm will keep on losing money all year long, with adjusted operating losses probably topping $730 million in Q3 2022, and more than $1.9 billion for all of fiscal 2022.
Commenting on the results, and on the selloff in the stock, Mizuho analyst Dan Dolev deadpanned that the fiscal Q2 news "failed to delight investors."
The "accidental" early release of the results (which explains why they appeared suddenly on the newswires at the odd hour of 2:48 p.m. Eastern), said Dolev, showed that Affirm's "growth from AMZN... was very strong," even if "take rates" were low, and "charge offs" (which is to say, customers reneging on their loans) were high. Yet even so, Dolev remains a fan of Affirm stock, and reiterated his own "buy" rating on the shares. (To watch Dolev's track record, click here)
"The strong success of the AMZN partnership and elsewhere reaffirms AFRM's stance as a viable alternative to credit," argued the analyst, and probably contributed to Affirm's gross merchandise volume roughly doubling in size sequentially from Q1.
That being said, even Dolev isn't wearing rose-colored glasses here, and he acknowledged that "it is understandable for investors to focus on... higher BNPL delinquency rates." In particular, the fact that taking on Amazon as a client means that Affirm will now be dealing with customers with "lower ITACS scores" (which are a measure of portfolio performance used to determine how well loans are performing), makes this a metric worth watching.
As a measure of the more cautious stance Mizuho will be taking going forward, Dolev lowered the multiple to sales he's willing to pay to own Affirm to 12x FY 2024 sales, and affirmed his new price target of $100, noting that it's lower than the $140 per share at which he previously valued the shares. Even so, there’s still upside potential of 70% from Thursday's closing price.
What does the rest of the Street think? Looking at the consensus breakdown, opinions from other analysts are more spread out. 8 Buys, 5 Holds and 1 Sell add up to a Moderate Buy consensus. In addition, the $95.21 average price target indicates ~62% upside potential. (See AFRM stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.