In the era of digital payments, Affirm’s (NASDAQ:AFRM) entrance into the stock market could not have been timed better. The San Francisco-based company aims to provide more inclusive, transparent loans than credit cards. The company has become increasingly popular among the millennial generation. In its first day of trading, Affirm stock soared.
The rally showed the strength of the stay-at-home economy. But after Affirm’s shares declined following its first earnings report last week, will the company ultimately live up to the hype?
Affirm Stock Dips After a Solid Earnings Report
After Affirm releasing its first earnings report last week, investors’ optimism towards the name declined. That may have come as a surprise to many, given that the company’s results beat analysts’ average estimates.
For the quarter that ended in December, Affirm’s revenue rose to $204 million, versus analysts’ mean estimate of $189.4 million. Its earnings per share of 45 cents were also ahead of the average outlook of a loss per share of 92 cents.
Affirm’s active-user base jumped 52% year-over-year to 4.5 million. Its operating loss also fell YOY. Given the upbeat results, it is likely that the dip of Affirm stock was largely caused by investors’ lofty expectations.
Affirm reported that, in the current quarter, its gross merchandise volume and revenue YOY growth will be lower than in the previous period.
But looking at the bigger picture, such a growth slowdown is nothing but a stepping stone on the road to tremendous long-term success. Sure, the share price may drop in coming months, but if you’re in it for the long-term, Affirm has several growth opportunities ahead.
Exciting Partnerships Will Drive Long-Term Growth
With over $600 billion spent on e-commerce each year, there’s no denying Affirm’s massive growth opportunity. In the coming months and years, the company plans to expand its digital footprint through a series of partnerships and acquisitions. One of its more recent endeavors was a deal with Shopify (NYSE:SHOP) to power Shop Pay installments in the U.S. Affirm is currently beta testing its product with over 100 Shopify merchants.
A second tailwind is Affirm’s acquisition of PayBright, a leading buy-now-pay-later (BNPL) platform in Canada. Using PayBright, Affiirm will expand its overseas presence. Together with PayBright, Affirm hopes to scale BNPL in the region while making the purchase process as seamless as possible. Finally, the company has partnerships with several airlines that will allow its customers to pay for airplane tickets in installments.
The company’s solid earnings report and numerous growth opportunities put Affirm stock in a great position to come out on top in the future.
The Bottom Line
Affirm’s lofty valuations heightened investors’ expectations which the company’s recent earnings report did not meet, causing the shares to tumble. However, when assessing a stock, I always consider the company’s long-term potential more than its short-term outlook.
Due to Affirm’s strong business model, it is inherently poised to succeed in the digital economy. A lack of trust in the traditional banking system and the rise of e-commerce will push this stock higher.
Additionally, the company’s global expansion will increase its market share. In that sense, Affirm stock looks like a solid buy on the dip. Analysts concur with this sentiment, with many taking a bullish view on the stock.
Affirm’s fundamentals are undeniably strong despite its short-term headwinds. Its recent earnings report indicates that it’s poised to become more successful over the longer term.
On the date of publication, Divya Premkumar held long position in AFRM and SHOP.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.