Shares of Affirm Holdings Inc. have lost more than three quarters of their value so far this year, but one analyst thinks they’re not yet done falling.
Wedbush’s David Chiaverini initiated coverage of Affirm shares
with an underperform rating late Tuesday, writing that while he likes elements of the company’s story, he has concerns about Affirm’s profit trajectory as well as growing competition in the world of installment payments.
Chiaverini noted that Affirm expects to be profitable on an adjusted operating basis in fiscal 2024, but he sees the company’s ability to deliver GAAP profits as “more questionable.” His concerns stem from “the significant level of stock-based compensation and enterprise warrant & share-based expense included in the financials.”
He also worries about various buy-now-pay-later (BNPL) market trends, given rising competition and the potential for pressure on Affirm’s gross merchandise volume if e-commerce growth slows or if the company “tightens its credit box” to account for changing economic conditions.
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“Management sees a world over the next several years where only a few of the strong BNPL players survive and hold share, akin to the credit card network companies we see today (i.e. Mastercard, Visa, & Amex),” Chiaverini wrote. “However, competition is not just coming solely from the big BNPL players as traditional financial institutions like banks and other card-issuing firms are starting to offer their own BNPL-type products.”
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Chiaverini acknowledged what he sees as positive aspects within Affirm’s narrative including the promise of its debit-card offering and the general value proposition that the company brings to consumers and merchants, but he views the stock’s valuation as “rich.” He wrote that Affirm shares were trading at 3.7 times his 2023 sales estimates, while “neobank peers” were trading for 2.9 times sales estimates and traditional consumer finance companies had a 1.4-times multiple.
He set a price target of $15 on the stock, which recently changed hands north of $24.