Affirm Stock Could Be In Real Trouble If the Economy Slows


  • Affirm Holdings (AFRM) stock is off 70% from the end of the year, and down 48.6% from Feb. 10 when it released its December quarter results.
  • Affirm provided an update on March 14, but essentially said operating losses would be only slightly worse at 11% to 13% of revenue.
  • With higher interest rates from the Federal Reserve, expect to see higher operating losses in 2022, as its cost of funds rises.
Smartphone with website of US financial technology company Affirm Holdings Inc (AFRM) on screen with logo Focus on top-left of phone display
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Affirm Holdings (NASDAQ:AFRM) just keeps drifting lower. The lending company’s recently released its second quarter earnings which showed losses and project further losses. That’s not going to do anything to move AFRM stock higher.

Moreover, a month later the company provided a performance update on March 14, near the end of the quarter ending March 31. I find that strange. Hardly any firm does this. It’s almost as if the company is worried about why their stock keeps falling and they needed to do something about it. The problem is their “update” did not bring any smiles to investors.

The reason is really simple: Affirm is still projecting operating losses. How does a lending company, with an $8.58 billion market capitalization keep making losses?

Here’s Affirm’s “answer”: Its operating losses for the company’s fiscal third quarter ending March 31 will result in an adj. operating loss as a percentage of revenue ranging from 11% to 13%. This is slightly better than the prior range of negative 12% to 14% of revenue.

I’m sorry, not impressed. And the market isn’t either. However, since March 14 AFRM stock floated higher to $48.15 as of March 29. But after that AFRM has drifted lower, down to $30.18 as of April 26.

The truth is that with the Federal Reserve aggressively raising interest rates, it’s highly likely that Affirm’s cost of funds is likely going to rise as well. The problem I have had in the past with AFRM stock is that the company does not disclose its net spread, and its gross funding costs as a percent of loans made. So we don’t know exactly how likely its losses could rise with higher funding costs.

Where This Leaves Investors in AFRM Stock

The average of 15 analysts surveyed by Refinitiv (via Yahoo Finance) shows their average price target is still very high at $62.93 per share. Moreover, TipRanks reports that the average of 13 analysts is $68.38 per share or 127% over today’s price.

However, this is not the whole story. For example, Seeking Alpha’s Wall Street Ratings tab shows that the price target has been falling from a peak of $172 in early Nov. 2021. It has been consistently drifting lower. On Feb. 14 it was $79.46 when the company issued its December quarter results. By March 23 it was $66.14, and by April 21 it fell further to $65.14. The point is that analysts have been lowering their forecasts for the stock ever since the company released its business performance update.

In other words, no one is impressed with ongoing losses. Affirm needs to realize that with a slowing economy and with higher interest rates, its operating performance is set to deteriorate. It needs to take drastic action to lower its ongoing overhead and operating costs.

Recent analyst reports are not positive. Piper Sandler (NYSE:PIPR) released a report on April 6 and recommended a “Neutral” position. MoffettNathanson reported on April 5 and also recommended a “Neutral” position. However, up until the end of March analyst recommendations were all positive, including several “Buys” on the stock.

So it seems that analysts may have changed their opinion going forward. They, too, might be worried about the company’s ongoing operating losses going forward. That could be especially troublesome once the Fed starts quickly raising rates in an attempt to “cool off” the economy.

On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Mark Hake writes about personal finance on, and

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