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Affirm Smashed Short-Term  Earnings; Will it Last?
Stock Analysis & Ideas

Affirm Smashed Short-Term Earnings; Will it Last?

As ecommerce trends picked up over the last year and a half, the companies that help facilitate payments also experienced a boon. Payment processing for merchants, peer lending firms, and even point-of-sale platforms benefitted from the industry’s massive rebound. From its business model of allowing customers to pay in fixed installments, Affirm Holdings, Inc. (AFRM) saw a huge spike in share price after recently reporting earnings results that were far beyond expectations. (See Affirm stock charts on TipRanks) 

Spelling out his neutral take on the matter is Ryan Carr of Jefferies Group, who wrote that while the firm has seen overtly positive quarterly performance, obstacles remain in the form of increased competition and a normalization of larger market forces. These forces are in reference to the state of high liquidity levels and low interest rates due to U.S. federal fiscal intervention after the 2020 recession. 

Carr assigned a Hold rating on the stock, and raised his price target to $82 from $56. Despite the large raise, this target still represents a possible 12-month downside of 33.71%. 

The analyst noted Affirm’s smashing Q2 results, which included exceeding Wall Street consensus estimates on gross merchant volume, revenue, and guidance. These metrics did well due in part to “strong consumer credit performance,” as stated by Carr. Additionally, the firm acquired nearly 100% more active customers year-over-year. 

In other optimistic news, Affirm recently partnered with Amazon (AMZN), which is expected to significantly increase its total addressable market and ultimately its user base. 

Although the company is anticipated by Carr to expand along with positive ecommerce trends, several key drivers of growth may have begun to plateau. These include “merchant discount rates, Gain on Sale margins, credit losses, and cost of funds,” and could result in a “tug-of-war on profitability” as operating leverage decelerates. 

On TipRanks, AFRM has an analyst rating consensus of Moderate Buy, based on 6 Buy and 4 Hold ratings, and 1 Sell rating. The average Affirm price target is $111.00, suggesting a potential 12-month downside of -10.27%. It is important to note that AFRM closed Friday trading after gaining 34.37% on the day. The stock is currently priced at $123.70 per share. 

Disclosure: At the time of publication, Brock Ladenheim did not have a position in any of the securities mentioned in this article.

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