AFRM Stock: Affirm Is a BNPL Company With Massive Potential

Author: Finscreener

Estimated read time: 3 minutes

Publication date: 10th Sep 2021 20:31 GMT+1

Similar to most IPOs or initial public offerings Affirm (NASDAQ: AFRM) stock has been volatile since it went public in January 2021. AFRM stock fell from $117/share in January to $46.5 in May before it regained momentum to currently trade at $120.24.

Despite its wild swings, here’s why I think Affirm stock remains a solid bet for long-term investors.


An overview of Affirm

Affirm Holdings operates as a BNPL (buy-now-pay-later) platform for digital and mobile-first commerce in Canada and the U.S. Its platform includes POS or point-of-sales payment solutions for customers, merchant commerce solutions as well as a consumer-focused application. Affirm’s payments network and partnership with an originating bank allows customers to pay for a purchase over time. The payment periods can range anywhere between one to 48 months.

At the end of June 2021, the BNPL company had partnered with 29,000 merchants significantly higher than the 6,500 figure in the prior-year period. Its merchants base includes small businesses, large enterprises, direct-to-consumer brands, and traditional retail stores.

In the June quarter, Affirm increased its gross merchandise volume or GMV by 106% year over year to $2.5 billion. In fiscal 2021 that ended in June, GMV rose by 79% to $8.3 billion. Affirm also grew its active consumers by 97% to 7.1 million while transactions per active customer were up 8% at 2.3 at the end of June.


Recent quarterly results drove AFRM stock higher

In Q4, Affirm reported sales of $261.8 million, which was an increase of 71% year over year. Sales growth was attributed to increases in network revenue and interest income. Its total revenue after accounting for transaction costs rose to $147.7 million, up from $107.6 million in the prior-year period. This included a $32.2 million gain in provision for credit losses on the back of stronger than expected repayments as well as reduced stress multiples.

Its operating loss stood at $124.7 million compared to a profit of $39.3 million in the prior year period. However, this includes a non-recurring charge of $105.2 million that relates to stock-based compensation. Adjusted operating income was $14.2 million, lower than an adjusted operating income of $476.7 million in Q4 of 2020.

The company reported an adjusted net loss of $0.48 per share. Analysts expected Affirm sales to touch $226.4 million with an adjusted loss of $0.29 per share in fiscal Q4. 

In June this year, Affirm advanced its partnership with Canadian tech heavyweight Shopify (NYSE: SHOP). Now, Shopify Pay installments are exclusively powered by Affirm and this solution is available to all eligible Shopify merchants in the U.S.

Last month, Affirm also announced a non-exclusive partnership with Amazon (NASDAQ: AMZN) to offer its flexible payment solutions to consumers who shop on in the U.S. Affirm will allow customers to split the cost of purchases of over $50 into monthly payments without any fees.


What next for Affirm stock?

Affirm stock is currently trading at a market cap of $32 billion. Analysts tracking the company expect sales to touch $1.17 billion in fiscal 2022 and $1.54 billion in 2023. This top-line expansion will enable AFRM stock to reduce its adjusted losses from $2.72 per share in fiscal 2021 to $0.46 per share in fiscal 2022. 

This indicates AFRM stock is valued at a forward price to sales multiple of 27.4x which is steep. But the company’s management team remains optimistic about long-term growth.

Michael Linford, CFO of Affirm said, “We delivered another set of excellent results to close out our fiscal year with GMV and revenue growth continuing to accelerate. During the fourth quarter, we delivered strong unit economics while driving even greater capital efficiency. The strategic progress we achieved in fiscal year 2021 sets us up for long-term growth. We have never been more confident and excited in Affirm's future."

Disclaimer: The writer is an experienced financial consultant who writes for The observations he makes are his own and are not intended as investment or trading advice.