The Rise and Fall of Affirm: Can It Reclaim Its Former Glory?
A Leading Player in the Booming BNPL Market
Affirm, a pioneer in the buy now, pay later (BNPL) space, made a splash when it went public in January 2021. Its stock soared to a record high of $168.52 in November 2021, only to plummet below $9 the following December. What drove this dramatic swing?
Rapid Growth and Early Mover’s Advantage
Initially, investors were impressed by Affirm’s rapid growth and early mover’s advantage in the booming BNPL market. Its platform helps merchants and customers split purchases into smaller installment plans, offering an attractive payment option for younger and lower-income consumers.
The Ugly Truth: Rising Interest Rates and Losses
However, as interest rates rose and growth cooled off, Affirm’s valuations took a hit, highlighting its significant losses. The company’s stock price suffered as a result.
A Resurgence: Declining Interest Rates and Accelerated Growth
Fast-forward to today, and Affirm’s stock has bounced back, trading at around $66. This resurgence can be attributed to declining interest rates and accelerated growth. But can it maintain this momentum?
Key Metrics: A Mixed Bag
Affirm’s growth in active merchants, active consumers, transactions per active consumer, and gross merchant volume (GMV) all surged throughout fiscal 2021 and fiscal 2022. However, growth decelerated in fiscal 2023 as pandemic-era tailwinds dissipated and inflation curbed consumer spending.
The Road Ahead: Challenges and Opportunities
Despite the challenges, Affirm remains committed to its growth strategy. It expects its GMV to grow at least 28% to over $34 billion in fiscal 2025, with operating margins turning positive on a GAAP basis by the fourth quarter of the year. Analysts expect revenue to rise 33% for the full year.
Valuation: Reasonable but Risky
With an enterprise value of $25.3 billion, Affirm looks reasonably valued at 8 times its projected sales in fiscal 2025. However, the company remains highly sensitive to inflation, interest rates, and other macro headwinds, which could throttle its growth and disrupt its plans for stable long-term profits.
Investor Takeaway
Investors should carefully weigh the risks against the potential rewards before chasing Affirm’s recent rally. While the company has made significant strides, it’s essential to consider the challenges ahead and the potential impact on its stock price.
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