Affirm (NASDAQ:AFRM) has turned out quite the winner for many investors. AFRM stock more than doubled since August, making it one of the best performing tech plays. Now that the company is getting the recognition it deserves, the question is whether there is still upside left for AFRM stock.
I believe there is and AFRM stock could be the next big tech play on Wall Street.
Affirm Had a Blockbuster Quarter
Affirm’s recently reported first-quarter 2022 fiscal earnings were quite the blockbuster. The company has shown improved metrics across the board. The number of Active Merchants increased by 15 times in the quarter from 6,500 to 102,000. This was largely due to Shopify (NYSE:SHOP) merchants integrating the company’s installment services to their platform.
Gross merchandise volume (GMV) grew 84% to $2.7 billion in Q1 2022. If you exclude the largest merchant GMV actually grew by a whopping 124% year-over-year.
The company had 8.7 million active consumers at the end of the quarter a 124% year-over-year increase. This translated to revenue of $269.4 million, a 55% year-over-year increase. Revenue less transaction costs, a non-GAAP measure Affirm uses to gauge value generated by the platform, was $112.1 million compared to $269.4 million, a 55% increase in Q1 fiscal 2021. This is an increase of 102% and is double that of top-line revenue growth.
The faster rate of growth of revenue less transaction costs shows the operating leverage of Affirm’s business model.
Analysts Seeing Affirm’s Potential
Soon after the announcement of Affirm’s business-changing deal with Amazon (NASDAQ:AMZN), a slew of Wall Street analysts raised their price targets. RBC Capital analyst Daniel Perlin increased the company’s price targets from $130 to $175 while reiterating an Outperform rating. Bank of America reiterated its “buy” rating and increased AFRM stock’s price target to $191 from $183. Andrew Jeffrey from Truist had an even higher price target of $210, a substantial increase compared to $150 previously. He also mentioned that “Affirm stands out due to its superior data-driven tech stack, which drives better outcomes for all ecosystems participants”.
Despite the rapid rise of the AFRM stock price, there is still plenty of upside left. This can be seen by looking at the stock’s average Wall Street price target as compiled by TipRanks. AFRM stock has an average price target of $170 based on 12 Wall Street analysts’ numbers. This represents 22.25% pside from AFRM’s last traded price of $139. The high forecast is $220 and the low forecast is $65.
This low forecast of $65 was due to a downgrade from DA Davidson last August. The investment bank downgraded AFRM stock from Buy to Neutral. On a note, the analyst was worried about increasing competition in the field. The concern about the competitive landscape was magnified by the Afterpay (ASX:APT) and Square (NYSE:SQ) deal. As Square is one of the leading FinTechs the fear was that it will simply dominate Affirm in this market.
However, I don’t think that will be the case as Affirm has built its entire business and technology stack around the “Buy Now Pay Later” concept.
The partnership with Amazon shows that Affirm’s superior technology makes it a valuable partner. Therefore I believe the low range of these forecasts is extremely unlikely. Especially in light of the company’s partnership with Amazon.
Investor Takeaway on AFRM Stock
Overall, this was a fantastic quarter for Affirm and solidifies my underlying thesis for the company and investment in AFRM stock.
Affirm’s main competitive advantage is its technological platform. The quality of the partnerships the company is able to ink is proof of this. I believe Affirm’s platform will only continue to scale in the future especially with this new Amazon deal.
On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
