Affirm Holdings
Of course, this strategy is fine under predictable economic conditions that have prevailed over the last decade with low inflation and low rates. However, this dynamic has now been upended which means that default rates could spike, and also the debt that Affirm owns would be deflating in value.
In many ways, Affirm is the poster child for this bull market in growth stocks as its business led to revenue growth for other online sellers and forced nearly every fintech company to adopt a BNPL solution to remain competitive. This is also reflected in Affirm's stock which climbed from $70 to over $170 from May 2021 to November 2021. However, all of these gains have been given up over the past couple of months and the stock is now close to an all-time low.
Investors, who were looking for some relief with the company's earnings report, were likely disappointed as the stock declined more than 40% in the ensuing sessions. The company missed earnings expectations as it reported a steeper loss than expected at a loss of $0.57 per share vs a loss of $0.49 per share. It did slightly top on revenue at $361 million vs $328.8 million. In terms of its guidance, the company expects between $1.29 billion and $1.31 billion in revenue which was above expectations of $1.27 billion.
Clearly, these results were not significant enough with its marginal beat to reverse the stock's negative momentum. There also seems to be a "buy the rumor, sell the news" effect for Affirm as its deal with Amazon was considered to be one of the bullish catalysts for the stock. Essentially, it's not moving the needle as much as expected.
As a growth stock, rising rates are a headwind for Affirm especially as the company remains quite overvalued with its $16 billion market cap. Given that Affirm's growth is sharply decelerating, while multiples remain high and trends are unfavorable, means that investors shouldn't be tempted to buy the stock despite its sharp drop.
