AFRM stock is a good short-term buy
- To assert (AFRM) the stock has rebounded strongly from its March low
- Affirm insists its growth story is intact
- The risks and benefits of standardization Buy now, pay later
Affirm Assets (NASDAQ:AFRM), the company Buy Now, Pay Later (BNPL), rebounded from its lows.
Shares that traded at nearly $30 each a month ago were expected to open at around $47 on April 4. That’s a big short-term gain, but there are people who bought in October near $146 sitting on big losses.
It’s still not cheap. At its current price, Affirm is worth $13.2 billion on projected revenue of $1.32 billion for 2022. But that would be a 29% increase from $870 million in fiscal 2021. and double 2020’s $509 million.
Affirm offers fixed-term loans, sometimes interest-free, as opposed to revolving credit card credit terms. Visa (NYSE:V) and MasterCard (NYSE:MY). The stock rose last year as shares of traditional credit processors fell.
Is this history about to repeat itself? Probably not.
The case of the bull
Affirm has become a Wall Street star last year after signing an agreement provide its service to Amazon.Com (NASDAQ:AMZN). A month later, he signed a similar case with walmart (NYSE:WMT). Affirm also has an agreement with Shopify (NASDAQ:STORE).
The deal with Amazon came shortly after Square, now To block (NASDAQ:SQ), said he would spend $29 billion on Afterpaya small BNPL player based in Australia.
This action made founder Max Levchin, a young Ukrainian immigrant, a multi-billionaire. Forbes recently estimated his fortune at $1.3 billion. Despite falling title, Levchin insists he did not sell a single share.
Affirm that the direction is revealing Wall Street it is still experiencing rapid growth in its number of users, gross merchandise volume (GMV), and in income. The stock price’s 70% plunge in 2022 only began to reverse last month after the company raised its revenue forecast.
The bear case
Affirm’s bearish case comes down to credit risk and growing competition.
BNPL companies are not transaction processors. They are also lenders, who package and resell their loans on the market. They were sold last year as tech stocks, which are high in value, but as they expand their operations, they are seen as banks, which are low in value.
Considered a technology stock, Affirm increases its losses as quickly as it increases its income. The company lost $431 million in its 2021 fiscal year ending in June, on revenue of $870 million. Last year he lost $113 million on a turnover of 509 million dollars.
If you think of it as a bank, however, you see short-term assets nearly tripling, year over year, and you see those loans as assets, not liabilities.
After being caught off guard by BNPL, the credit card industry reacted. Mastercard has added a host of new partners to its Mastercard installment program. Visa has made its Visa remittance service an application program interface (API), making it easy to bear. It brought the entire banking sector in direct competition with Affirm.
High credit card interest rates and Affirm’s early promise of interest-free loans gave it big advantages in the market.
If it can scale its operations to the size of its new partners and build customer loyalty, it could justify investor confidence. If Block hasn’t significantly overpaid for Afterpay, AFRM stock looks cheap.
But as money starts to cost again, the banks have an advantage. Their capital is still practically free from depositors. Affirm needs to get money from the market.
Barrons called Confirm a purchase a year ago, when the stock was 32% higher than it is today. The BNPL was seen as the future of shopping.
It may be true. But Affirm won’t get all that market. I guess it’s a good short-term buy, but long-term investors might be disappointed. BNPL is not a technological game. It’s a banking game. This limits the rise.
As of the date of publication, Dana Blankenhorn held a long position in AMZN. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.