This is a stark turnaround for Affirm which has struggled for most of its time as a public company. The company made a very strong debut as it opened nearly 100% higher on its first day of trading. However, since then, the stock has mainly trended lower. Additionally, there's considerable skepticism about its valuation and business model. Affirm essentially offers a "buy now pay later" service that allows consumers to make no-interest payments on any product they own. Therefore, the company takes on credit risk, while it gets a cut from the seller as these schemes tend to increase revenues.
Inside the Numbers
In its fiscal Q4, Affirm reported revenue of $262 million, topping expectations of $225 million. This was 71% better than last year. It also reported a loss of $0.48 per share. The company also reported 7.1 million active customers, an increase from 5.4 million in its last quarter.
The company also issued guidance that was much stronger than expected. In its next quarter, it anticipates revenue between $240 million and $250 million, which was better than consensus estimates of $233.9 million.
One concern about Affirm is that so much of its revenue was from a handful of companies like Peleton but its partnership with Amazon dispels these concerns as it will allow Amazon customers to split any purchase into monthly installments with no additional cost. Many expect that "buy now, pay later" will only continue to grow in popularity especially as Affirm doesn't come with onerous interest payments. And, Affirm is clearly the leader in the space.
Stock Price Outlook
Of course, these financing schemes aren't completely new. What is new is that Affirm is getting its cut from the seller rather than profiting from the consumer. However, the company is certainly taking on significant credit risk in the event of default. And, there is something of a late-cycle feel to this similar to how home equity loans and refinancing increased at the end of the last credit cycle.
Affirm and consumers may be making assumptions about interest rates, the economy, and their finances based on the last decade which has been an unusual period in time by many measures. It's uncertain how Affirm would fare in the event of higher rates or a recession.
Therefore, investors or traders in the stock should understand that the stock is essentially a bet that rates remain low and the economy keeps growing.