Shares of fintech company Affirm Holdings (NASDAQ: AFRM) fell over 21% yesterday and are down by another 9% in pre-market trading on February 11, after it announced fiscal Q2 results and missed revenue guidance for the following quarter.
In the second quarter of fiscal 2022 that ended in December, Affirm recorded sales of $361 million, an increase of 77% year over year, and an adjusted loss of $0.57 per share, compared to a loss of $0.38 per share in the year-ago period. On the other hand, Wall Street forecast the company to report sales of $328.8 million and a loss of $0.34 per share in Q2.
Further, Affirm forecast sales between $325 million and $335 million in Q3, compared to consensus forecasts of $330 million. For fiscal 2022, it forecast sales between $1.29 billion and $1.31 billion, compared to estimates of $1.28 billion.
So, while Affirm easily beat Wall Street revenue forecasts in Q2, analysts expected the company’s guidance for fiscal 2022 to be considerably higher.
What impacted company sales in Q2?
Affirm reported its active merchants increased to 168,000 from just 8,000 due to the adoption of Shop Pay Installments by merchants on Shopify’s (NYSE:SHOP) platform. Its active consumers were up 150% year over year to $11.2 million and were up 29% on a sequential basis. The number of transactions per customer also increased by 15% to 2.5 as of December 2021.
In the last year, Affirm has more than doubled gross merchandise volume (GMV) which is basically the total value of the amount spent on its platform. The company added seven million active customers to its network and is focused on scaling enterprise partnerships as well as benefiting from network effects.
Affirm expects gross merchandise volume between $3.61 billion and $3.71 billion in Q3 and between $14.58 billion and $14.78 billion in fiscal 2022. Its GMV was up 115% at $4.5 billion in fiscal Q2 of 2022.
While Affirm is expected to remain unprofitable in the near future, its unit economic is strong. The company’s revenue less transaction costs grew faster than revenue at 93% year over year. Affirm emphasized as it accelerates network growth it will also focus on operating with efficiency. For example. the company already reduced the equity capital used to fund its loans by 17%.
What do analysts expect from Affirm?
Piper Sandler analyst Kevin Barker maintained a “neutral” rating on AFRM stock with a 12-month price target of $108. Barker explained while Q2 was a strong quarter for Affirm, its operating expenses were higher than expected, which meant it failed to beat earnings estimates in Q2. The analyst also explained that AFRM stock lost momentum due to its guidance for Q3 which also indicated lower than expected gross margins.
Analysts expect Affirm to narrow its loss per share from $2.72 in fiscal 2021 to $1.28 in fiscal 2023. Comparatively, its sales are forecast to more than double from $871 million to $1.87 billion in this period. Given Affirm’s market cap of $16.5 billion, we can see that AFRM stock is valued at a forward price to 2023 sales multiple of 8.82x which is still steep.
Affirm stock is down 65% from record highs but remains vulnerable given the near-term volatility in the equity markets due to record high inflation numbers and the threat of multiple interest rate hikes.
Alternatively, it's impossible to time the broader markets and every major correction in Affirm’s stock price should be viewed as a buying opportunity. Analysts have a 12-month average price target of $111 for AFRM stock which is 100% above its current trading price.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
