Affirm (AFRM) Jumps 10%, Eyes Profitability by Mid-2023

Shares of Affirm Holdings, Inc. AFRM jumped 10% yesterday, thanks to a favorable outlook, impressive earnings figures and management’s optimism. The stock significantly declined before its earnings release but has been recovering quite impressively ever since. Growth in travel, ticketing, general merchandise, active merchants and consumers are boosting its performance.

Affirm Holdings, Inc. Price and Consensus

Affirm Holdings, Inc. Price and Consensus

Affirm Holdings, Inc. price-consensus-chart | Affirm Holdings, Inc. Quote

In a Yahoo Finance Live interview, CFO Michael Linford highlighted some crucial points, which might have acted as a catalyst for the stock’s galloping status. AFRM’s earnings beat the Zacks Consensus Estimate for third-quarter fiscal 2022 by 57.8% against growing volatility in the economy. Its impressive performance despite inflation woes, rising interest rates and an ongoing war instills investor confidence in the stock. A diverse and huge merchant base is likely to have aided Affirm in offsetting the adversities.

Linford pointed out that while transactions grew 162% in the fiscal third quarter, 80% of the transactions came from repeat users. AFRM’s client retention ability is crucial as it bodes well for the long haul. 73% year-over-year growth in gross merchandise volume further reflects its value-boosting prowess.

Moreover, Linford hinted at probable acquisitions to enrich its inorganic growth story. Affirm has around $3 billion in its kitty and a stressed tech sector to shop from. Being aggressive, the company can boost its profitability through lucrative tech acquisitions. It already has a proven track record in such.

Investors are also looking at its path to profitability. In the Barclays 2022 Virtual Emerging Payments and FinTech Forum, Linford reiterated Affirm’s target of achieving sustained profitability by mid-2023. This might be ahead of some analysts’ estimates. The Zacks Consensus Estimate for next fiscal-year earnings indicates a 41.9% improvement from the last fiscal year’s reported figure. The consensus mark for revenues in the following fiscal year calls for a 44.5% jump from the prior fiscal-year reported number.

Affirm’s scope of growth is enticing. It expects the North American e-commerce market to grow to $1,500 billion from $900 billion registered in 2021. Of the total expected market size, Buy Now, Pay Later (BNPL) will likely constitute 8.5%, indicating growth from 3.8% reported in 2021. This underlines the stock’s great potential at the moment. Further, the upside supports the company’s drive to enhance the scale and seek acquisition opportunities.

Zacks Rank & Key Picks

Affirm currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the Business Services space are TELUS International Inc. TIXT, MarketWise, Inc. MKTW and Automatic Data Processing, Inc. ADP, each presently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

TELUS International’s bottom line for 2022 is expected to jump 20% from the year-ago reading. The stock has witnessed two upward estimate revisions in the past 30 days against none in the opposite direction. TIXT's earnings beat estimates in each of the last four quarters, the average being 10.8%.

MarketWise’s bottom line for the current quarter is likely to surge 100.5% from the year-ago reported figure. Baltimore, MD-based MKTW provides financial tools, education, research and other products in different markets. The Zacks Consensus Estimate for MKTW’s current-quarter revenues stands at $135.3 million.

The consensus mark for Automatic Data Processing’s 2022 earnings is pegged at $6.97 per share, indicating a 15.8% increase from the year-earlier reported figure. ADP’s earnings beat estimates in each of the last four quarters, the average being 6.2%.

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