Amid a down day for the market following the Federal Reserve’s intention to keep interest rates high to fight inflation, Affirm (NASDAQ:AFRM) stock stood out for its severe erosion. The buy now, pay later platform provider reported disappointing earnings results along with downgraded expectations for the full year. Fundamentally, the disclosure represents a sharp pivot from the high-flying performance of financial technology (fintech) firms.
For the company’s fiscal fourth quarter, Affirm lost 65 cents a share, disappointing covering analysts. Wall Street consensus called for a loss of 58 cents a share. However, revenue represented a bright spot, with the fintech firm posting $364.1 million. Analysts on average projected sales of $355 million.
Additionally, the company grew gross merchandise volume by 77% on a year-over-year basis. Management noted that 85% of transactions came from repeat users.
However, the market really took a dim view on Affirm’s forward expectations. The fintech firm now “expects full-year 2023 revenue to be between $1.63 billion and $1.73 billion, below estimates of $1.9 billion,” according to Reuters’ coverage.
AFRM Stock Faces Pressure From All Fronts
Still, Affirm CEO Max Levchin provided a positive angle, stating “While the growth of online commerce is falling back to pre-Covid levels, thesecular [sic] trend toward adopting honest financial products is gaining momentum. Not only does this make our mission more important but it also plays directly into Affirm’s strengths.”
Unfortunately, the reality was that the Street expected more from the company’s performance, disclosed on Thursday. The main point of contention for AFRM stock is that the underlying business — providing short-term loans — wouldn’t hold water in a weak economy. So far, those fears appear to be realized.
Another headwind that imposed much devastation on AFRM stock is competition. Thomas Hayes, chairman and managing member at Great Hill Capital, remarked that “There is no competitive moat for this business and Affirm’s earnings results proved it. The pie might grow, but the number of players competing for slices has too.”
Adding insult to injury, RBC lowered its price objective on AFRM stock to $40 from $48.
Why It Matters
In the early afternoon session, AFRM stock suffered losses of more than 20%. With interest rates likely set to rise per the Fed’s latest comments, the underlying business faces extraordinary pressure. As well, earnings reports from major retailers suggests that discretionary spending is declining, adding more pressure to Affirm.
On the date of publication, Josh Enomoto 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.
