Why Is Affirm Stock Falling?

Shares of fintech company Affirm Holdings (NASDAQ: AFRM) are down 13.4% in pre-market trading today. It announced results for the fiscal fourth quarter of 2022 (ended in June) after market close on Thursday and reported revenue of $364.1 million and an adjusted loss of $0.65 per share.

Comparatively, analysts forecast Q4 revenue at $354.77 million and adjusted loss at $0.59 per share. In the year-ago quarter, Affirm reported revenue of $261.8 million and a loss of $0.46 per share.

In addition to the earnings miss, Affirm also disappointed investors with its guidance for Q1 and fiscal 2023. It expects revenue between $345 million and $365 million in Q1 compared to estimates of $386 million. In fiscal 2023, Affirm forecast sales between $1.625 billion and $1.725 billion compared to consensus estimates of $1.91 billion.

What impacted Affirm's revenue in Q4?

In the June quarter, Affirm grew gross merchandise volume by 77% to $4.4 billion. It set a new record for consumer re-engagement as 85% of transactions came from repeat users, and the company focused on scaling its network and maintaining attractive unit economics while capturing greater market share.

In fiscal 2022, Affirm’s GMV rose to $15.5 billion, rising 87% year-over-year. Its active merchant base expanded from 29,000 to 235,000 due to the adoption of Shop Pay by merchants on Shopify’s platform. Further, active consumers almost doubled to 14 million and rose 10% or by 1.2 million on a sequential basis. In Q4, total transactions surged to 12 million, rising 139% year-over-year.

Affirm increased sales by 39% in Q4 on the back of GMV growth, higher interest income, and rising servicing income as loan portfolios held by third parties scaled.

The CFO of Affirm, Michael Linford, stated, “We closed out our fiscal year very strongly, growing GMV by 87% and revenue by 55%. Our outperformance demonstrates that our strategy and investments are delivering results.”

He added, “Affirm achieved impressive growth rates as we expanded and diversified our merchant base while also demonstrating significant traction with our higher-frequency Split Pay offering. We believe that we are well-positioned to continue scaling our network while maintaining attractive unit economics.”

What next for AFRM stock price and investors?

Despite its stellar revenue growth, AFRM stock price is down 85% from all-time highs, valuing the company at a market cap of $8 billion. Analysts tracking the company expect Affirm to increase revenue by 41.5% to $1.91 billion in fiscal 2023 and by 36% to $2.6 billion in fiscal 2024.

While still unprofitable, AFRM stock is forecast to narrow its loss per share to $1.87 in fiscal 2024 from $2.51 per share in fiscal 2024.

An alternative to credit card payments, Affirm provides buy now, pay later services. The Affirm platform performs soft credit checks and then approves microloans for each purchase made by the customer. These purchases are split into smaller payments, and interest for the microloan is calculated on a fixed dollar amount basis.

Affirm generates the majority of sales from merchant fees and interest payments from its customers. Several merchants have been promoting BNPL services to expand their customer base and make it easier to make big-ticket transactions.

AFRM stock is valued at more than 4x forward sales which is quite steep for an unprofitable company. Further, the current macroeconomic environment is quite challenging, and consumer spending is expected to move lower given high inflation and rising interest rates. There is a good chance for Affirm stock price to move lower in the next 12 months.

Related: Snowflake Stock Surges on Massive Revenue Beat