When Affirm Holdings reports June-quarter earnings this week, the consumer financing firm's fiscal 2023 outlook could move AFRM stock.
Affirm stock has plummeted nearly 70% in 2022 and changing investor sentiment could present a challenge, analysts say. Affirm in May increased fiscal 2022 guidance for revenue, gross merchandise volume (GMV) and profit margins. But shares sold off on worries over the company's ability to finance its business plan amid rising interest rates.
Affirm is one of the biggest providers of "buy now, pay later" (BNPL) installment payment services. One overhang on AFRM stock is possible exposure to consumers that may fall behind in payments.
"We still think investors lack urgency and want to see how Affirm consistently manages through fast-evolving risks over the next several quarters before they can turn positive on the stock," said Morgan Stanley analyst James Faucette in a report. "Meanwhile, rising rates, inflation, normalizing consumer credit, slower e-commerce growth, a potential recession, and the impact of these factors to funding costs/margins and loan demand may continue to keep market participants largely on the sidelines."
Earnings for the San Francisco-based company's fiscal fourth quarter are due after the market close on Thursday. Competition in the BNPL market is expected to intensify with Apple entering the market. In addition, Square-parent Block now owns Afterpay. However, valuations for private BNPL players like Klarna have dropped.
"Investor concerns around the profitability of the BNPL model persist, with ongoing concerns about the credit market and the health of the consumer," Deutsche Bank analyst Bryan Keane said in a recent note to clients.
AFRM Stock: Consumer Exposure
In the June quarter, analysts forecast gross merchandise volume of $4.08 billion, up 64% from a year earlier. Revenue is expected to climb 35% to $354.7 million.
But analysts predict a loss of 62 cents per share, widening from a 38-cent loss a year earlier.
At Jefferies, analyst John Hecht said in his note to clients: "Despite expectations for solid GMV and revenue growth, equity investors are clearly paying attention to decreasing operating margin and indirect credit risk."
He added: "We believe credit risk aversion in the current market may drive ongoing price volatility in the near-term."
Affirm gets most of its revenue from transaction fees paid by online retailers. In addition, Affirm gets about one-third of its revenue from interest income paid by consumers.
Partners With Giants
One of Affirm's partners is e-commerce giant Amazon.com. The BNPL exclusivity agreement of Affirm with Amazon expires January 2023. Walmart is another partner.
Heading into the Affirm earnings report, AFRM stock had a Relative Strength Rating of 20 out of a best-possible 99, according to IBD Stock Checkup. Also, Affirm owns an Accumulation/Distribution Rating of A-. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading.
The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
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