The last time I weighed in on Affirm Holdings (NASDAQ: AFRM), I said, “The buy now, pay later (BNPL) boom shows no signs of slowing. Expected industry growth is off the charts, too. According to Bank of America, the BNPL market could grow 10x to 15x by 2025, and could eventually process up to $1 trillion in transactions.”
That was on October 18, as the AFRM stock traded at $147 a share.
By November 8, it was up to $176.65 before plummeting to about $48 a share. Down in the dumps, weakness has become opportunity. For one, the stock is wildly oversold on relative strength (RSI), MACD, and on Money Flow (MFI). Two, there’s still plenty of buy now, pay later momentum that could send AFRM back to $176.35.
Q2 Earnings Were Impressive. Guidance, Not so Much.
In Q2 2022, the company more than doubled its gross merchandise volume (GMV) year over year. In fact, that number was up 115% to $4.5 billion. Active merchants jumped from 8,000 to 168,000. Active consumers jumped 150% to 11.2 million.
Better, transactions per customer were up 15% to 2.5 as of late 2021.
Total revenue was up 77% to $361 million. Once you remove transaction costs, total revenue rocketed 93% higher to $183.6 million. Operating loss was $196.2 million from $26.8 million year over year. About $82 million of that was from stock-based compensation following IPO.
Then, the company gave guidance and stunk up the joint.
For the current quarter, the company expects for revenue to come in between $325 million and $335 million. Analysts were looking for $335 million.
However, Don’t Write the BNPL Stock Off Just Yet…
While guidance was disappointing, consider this.
One, a lot of fear has already been priced into the stock.
In fact, the pullback is overkill at this point. Two, over the next four years, analysts at Juniper Research say more than $995 billion will be spent through BNPL services. Three, according to Allied Market Research, the BNPL market generated about $90.7 billion in 2020. By 2030, it could generate up to $3.98 trillion.
In addition, by 2026, BNPL payments could account for more than 24% of global e-commerce transactions, as compared to 9% in 2021, according to the report.
All could benefit Affirm Holdings moving forward.
According to Affirm Holdings’ founder and CEO, Max Levchin:
“Millions of people see Affirm as a smart way to pay because of our honest, transparent, and customizable payment terms. Merchants recognize our ability to help them drive growth and deliver the experience consumers are demanding at checkout. We remain focused on extending our lead as we scale enterprise partnerships and benefit from self-reinforcing network effects.”
Four, while a good deal of analysts downgraded the AFRM stock, Morgan Stanley’s James Faucette said Affirm’s “blowout” Q2 report delivered “everything we wanted,” as quoted by TheFly.com. The analyst also raised his fiscal 2022 and 2023 revenue estimates, and has a $140 price target and an outperform rating on the stock.
The Bottom Line on Affirm Holdings
While the stock has been nothing to write home about recently, don’t write it off just yet.
In Q2 2022, the company more than doubled its gross merchandise volume (GMV) year over year. Active merchants jumped from 8,000 to 168,000. Active consumers jumped 150% to 11.2 million. Better, transactions per customer were up 15% to 2.5 as of late 2021. We also have to consider that a great deal of fear has already been priced into the stock.
Also, while a number of analysts downgraded the stock, Morgan Stanley believes the AFRM stock could run to $140 a share. The best advice I can give you is to take advantage of the fear. Buy the Affirm Holdings stock. Forget about it, and check back on it at a later date.
On the date of publication, Ian Cooper 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.
Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999.
