Affirm Holdings Inc. (AFRM) is a fintech company that offers buy-now-pay-later (BNPL) options to consumers. This allows them to finance purchases and helps merchants increase sales. The transactions are a win-win for both consumers and merchants, while Affirm acts as the intermediary facilitating the financing. The company is rapidly growing and is steadily moving towards profitability.
The recent interest rate cuts by the U.S. Federal Reserve (Fed) could significantly accelerate Affirm’s path to profitability, especially as the holiday shopping season approaches. The Fed’s decision to lower interest rates will make borrowing cheaper, directly benefiting Affirm by reducing its cost of capital. This, in turn, improves profit margins and allows Affirm to offer more competitive interest rates to its customers.
Lower borrowing costs also stimulate consumer spending, leading to increased transactions for Affirm and higher loan volumes. While this sounds positive, there’s a flip side. Lower interest rates mean Affirm will also earn less interest income as it passes on the savings to consumers, impacting revenues. However, Affirm isn’t the only BNPL company benefiting from these cuts. Its competitors face similar circumstances, creating further pressure on Affirm’s market share and pricing.
Affirm has been using artificial intelligence (AI) to enhance its operations and improve efficiency. Its AI algorithms are used for data-driven risk assessments and creditworthiness evaluations for each transaction. This allows Affirm to determine appropriate financing options for qualified consumers and even extend financing to individuals who may not qualify for traditional credit cards. AI also plays a crucial role in fraud detection and prevention.
Affirm’s AI-powered approach further enhances the shopping experience by providing personalized offers and financing recommendations to consumers. Workflows and processes are also automated through AI, streamlining operations and improving efficiency.
Affirm’s popularity has been growing rapidly, especially among millennials and Gen-Z, who are increasingly opting for BNPL services over conventional credit cards. Affirm has partnered with Visa Inc. (V) to launch the Affirm debit card, allowing users to make in-store purchases using Affirm. It’s also available to Apple Inc. Apple Pay users in the United States, enabling them to pay over time for eligible purchases in bi-weekly or monthly installments at 0%. Affirm has also established partnerships with major retailers like Target Co., Walmart Inc., and Amazon.com Inc., expanding its reach and customer base.
Affirm’s merchant network now comprises over 300,000 businesses, demonstrating its significant growth. The company remains in a hypergrowth stage, and its recent financial results reflect this. In fiscal Q4 2024, Affirm reported an EPS loss of 14 cents, beating consensus estimates of a 48-cent loss. Revenues surged 48% year-over-year to $659.2 million, exceeding the $604 million analyst estimate. Gross merchandise volume (GMV) also rose 31% year-over-year to $7.2 billion, significantly outpacing overall e-commerce growth.
Transaction volume within the Affirm network increased 42% year-over-year to 24.7 million and 15% quarter-over-quarter. Affirm has also raised its fiscal first quarter 2025 revenue guidance to between $640 million and $670 million, significantly higher than the consensus estimate of $625.04 million. GMV is expected to be between $7.1 million and $7.4 million. Adjusted operating margin is projected to be between 14% and 16%. Affirm has also raised its forecast for GAAP operating income profitability by fiscal Q4 2025, a year from now.
The company’s goal is to continue its journey towards profitability with a fiscal 2025 GMV exceeding $33.5 billion, revenue exceeding 10 bps, and an adjusted operating margin greater than 18.4%. CEO Max Levchin expressed his optimism in the company’s shareholder letter, stating, “We made great progress in FY’24. The opportunities ahead of us are significant, and we are excited to take full advantage of them. Scaling the Affirm Card, amplifying engagement with personalized incentives, rolling out new integrations, going live in the UK, and doing it all while achieving GAAP profitability is our plan for FY’25, and we are off to a fine start.”
The recent positive developments and Affirm’s strong financial performance have sparked a potential seed wave breakout in its stock price. A seed wave is a rare pattern characterized by two consecutive higher market structure low (MSL) triggers. Based on Fibonacci extensions of 1.27, 1.414, and 1.618, the seed wave establishes potential upside reversal zones (PRZs) as targets. AFRM triggered a price gap on its strong fiscal Q4 2024 earnings report, reaching $37.52. The first MSL formed at $35.52 and triggered above $40.29. The second MSL formed around the $37.52 gap fill, with a trigger near the first MSL trigger. This pattern suggests potential upside PRZ targets at $51.29, $53.06, and $55.56. The relative strength index (RSI) is attempting to bounce back up through the 50-band. Fibonacci pullback support levels are at $37.95, $35.71, $32.55, and $28.27.
Affirm’s average consensus price target is $35.53, and its highest analyst price target is $65.00. Analysts have assigned seven Buy ratings, nine Hold ratings, and five Sell ratings to the stock. The stock has an 8.39% short interest. Bullish investors can buy AFRM stock on pullbacks using cash-secured puts at the Fib pullback support levels to capitalize on the dip. Bullish options investors can implement a bullish call debit spread to limit maximum downside risk and profit from modest upside gains using less capital than owning the stock.
