Here's Why You Should Retain Affirm (AFRM) Stock for Now
Affirm Holdings, Inc. AFRM exhibits strong growth potential, driven by increasing active merchant numbers, a flourishing buy now, pay later (BNPL) landscape and a rising Gross Merchandise Volume (“GMV”). The company's robust transaction volumes and interest income contribute significantly to its positive outlook. The stock has experienced an impressive 144.1% surge in the past six months, surpassing the industry average of 6.1%.
Affirm — with a market cap of almost $12.6 billion — is a platform for digital and mobile-first commerce that offers financial products. This company presently carries a Zacks Rank #3 (Hold).
Let’s delve deeper.
The Zacks Consensus Estimate for AFRM’s current-year earnings indicates a 109.9% year-over-year improvement. The stock has witnessed two upward estimate revisions in the past 60 days against none in the opposite direction. Affirm beat on earnings in two of the last four quarters and missed twice. This is depicted in the graph below.
Affirm Holdings, Inc. Price and EPS Surprise
Affirm Holdings, Inc. price-eps-surprise | Affirm Holdings, Inc. Quote
The company expects to reach a significant milestone by achieving full fiscal year 2024 profitability on an adjusted operating income basis. The adjusted operating margin is anticipated to surpass 5% for fiscal 2024, highlighting a massive improvement from a year ago.
Fiscal 2024 revenues, as a percentage of GMV, are expected to match closely with the fiscal 2023 level of 7.9%. The consensus mark for current-year revenues is pegged at nearly $2 billion, suggesting a 27.3% rise from the prior year’s reported number. The anticipated growth will be supported by increasing GMV and transaction volumes. Management is optimistic about achieving a fiscal 2024 GMV surpassing $24.25 billion, implying notable growth from the previous year's $20.2 billion.
A report on BNPL trends from Adobe Analytics showed that in November, purchases made with BNPL services fueled online spending. The deferred payment financial service is playing a major role in consumer spending resilience observed in recent times. AFRM is expected to continue riding this momentum in the coming days. Moreover, partnerships with renowned firms like Evolve, Walmart, Liberty Travel etc., are expected to bolster its presence and aid in improved metrics for active merchants, gross merchandise value, and transactions.
Disciplined performance in recent quarters has become a catalyst for Affirm's network growth. Per the Zacks Consensus Estimate, AFRM is poised for robust 19% year-over-year growth in merchant network revenues for the current year. Additionally, the consensus projection for card network revenues in the same period anticipates a significant 15.7% increase compared with the previous year.
Affirm continues to benefit from a high interest environment, contributing to its positive top-line performance. In the preceding year, the interest income metric surged by an impressive 29.8%, reaching $685.2 million. The Zacks Consensus Estimate for the current year reinforces this trend, indicating a 56.3% year-over-year upswing in interest income.
Key Risks
However, there are a few factors that investors should keep an eye on. Growing competition in the BNPL sector, higher funding costs and increasing regulations driven by factors like high interest rates and limited consumer loan demand in the secondary market pose challenges to Affirm's growth. Nevertheless, we believe that a systematic and strategic plan of action will drive its performance in the long term.
Stocks to Consider
Some better-ranked stocks in the Business Services space are Envestnet, Inc. ENV, Gartner, Inc. IT and FirstCash Holdings, Inc. FCFS. While Envestnet sports a Zacks Rank #1 (Strong Buy), Gartner and FirstCash Holdings carry a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The bottom line of Envestnet outpaced estimates in three of the last four quarters and matched the mark once, the average beat being 3.2%. The Zacks Consensus Estimate for ENV’s 2024 earnings suggests an improvement of 24.8% from the 2023 estimate. The consensus estimate for revenues suggests growth of 9.8% from the 2023 estimate. The consensus mark for ENV’s 2024 earnings has moved 3.7% north in the past 30 days.
The bottom line of Gartner outpaced estimates in each of the last four quarters, the average beat being 34.4%. The Zacks Consensus Estimate for IT’s 2024 earnings suggests an improvement of 9.3% from the 2023 estimate. The consensus estimate for revenues suggests growth of 7.7% from the 2023 estimate. The consensus mark for IT’s 2024 earnings has moved 0.9% north in the past 60 days.
FirstCash Holdings’ earnings outpaced estimates in each of the trailing four quarters, the average surprise being 7.9%. The Zacks Consensus Estimate for FCFS’s 2024 earnings suggests an improvement of 21.6% from the 2023 estimate. The consensus estimate for revenues suggests growth of 7.8% from the 2023 estimate.
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Affirm Holdings, Inc. (AFRM) : Free Stock Analysis Report
