Affirm’s Takeover Speculation and What It Means for Investors

AFRM stock - Affirm’s Takeover Speculation and What It Means for Investors

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Affirm Holdings (NASDAQ:AFRM), a fintech company that is a disruptor of the consumer finance space offering point-of-sale (POS) loans and buy now pay later options. It could be a takeover target so let’s go into what that could mean for AFRM stock investors.

This is speculation news that Affirm did not comment on these rumors so it should be analyzed with a lot of skepticism now. However, it is big news, if it in the future becomes real, and it could be a catalyst for AFRM stock now. The reason is that shares of Affirm Holdings closed at $37.48 on April 12 with losses of nearly 63% year-to-date even after a one-month rally of approximately 32%.

Does it make sense for Affirm to become a takeover target now? From a business perspective if a company wants to acquire another firm it makes sense to pay any amount, either in cash or in stock or in a combination of these two, that is the lowest possible. Companies who seem generous and pay hefty premiums for their takeover targets are often making a strategic mistake. They overpay when they should not, and investors punish this dubious investment strategy by sending the shares of the acquirer company much lower.

As shares of Affirm have fallen more than 60% in 2022, it does make sense for another company to get interested in it given the above rationale. There is a lot of growth present as the company’s second quarter 2022 earnings report from Feb. 10 shows.

Affirm reported year-over-year an increase of 115% in its gross merchandise volume and a huge increase of Active merchants from 8,000 to 168,000. As well as a 150% increase in active consumers and a 77% increase in total revenue to $361 million. That’s compared to revenue of $204 million in the second quarter of 2021.

The company stated that: “Buy now, pay later (BNPL) is the fastest growing payment method  in the $10 trillion global payments market opportunity”

On top of this news, Affirm raised its outlook for the fiscal year 2022. This is a very positive signal for its business model performance. For investors, there is bad news, however, as the operating loss was -$196.2 million. That’s much higher than a loss of -$26.8 million in the second quarter of fiscal 2021. And the net loss was -$159.7 million compared to $26.6 million in the second quarter of fiscal 2021.

Another negative factor for AFRM stock is that its shareholders have been diluted in the past year, with total shares outstanding growing by 10.5%.

This all makes AFRM stock not a buy right now. If the rumors of becoming a takeover target become true in the future then patient investors may get rewarded with a nice stock price jump. For now though, it is better to focus on reality than just rumors.

On the date of publication, Stavros Georgiadis, CFA 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.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.


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