The Buy Now, Pay Later (BNPL) industry was meant to change the world. But now, the sector is imploding as investors worry about high-interest rates, perennial unprofitability, and growth of the industry. As such, it has been nicknamed as Buy Now, Profit When? Affirm stock price collapsed by over 20% in extended hours after the company published worrying financial results.
The plot thickens
The BNPL industry is having its death spiral as it battles existential challenges. As I wrote here, companies like Affirm, Zip, and Block have seen their valuations crash in the past few months. Affirm, which was valued at over $30 billion in 2020 now has a market cap of more than $4.65 billion. Similarly, Klarna, once the most valuable startup in Europe, has seen its valuation crash from over $47 billion to about $7 billion.
Affirm published its quarterly results on Wednesday. These results showed that the company’s Gross Merchandise Volume (GMV) jumped from over $4.4 billion to over $5.6 billion. The number of active consumers rose to over 15.6 million while the average transaction per active consumer jumped to 3.5. Total revenue rose from $361 million to $400 million.
However, while the headline figures were encouraging, digging deeper shows a company that is in trouble. For one, its exclusive deal with Amazon expired in January, meaning that the company will soon open its platform to competitors like Block’s AfterPay, PayPal, and even Apple. While Affirm has a first-mover advantage, I suspect that its market share will continue ebbing away soon.
Affirm also downgraded its forward guidance. The firm expects that its GMV will be between $4.4 billion and $4.50 billion in Q3’23 and between $19 billion and $20 billion in the fiscal year. Its revenue during this time is expected to be between $360 million and $380 million and between $1.47 billion and $1.55 billion, respectively.
Will AFRM stock recover?
Still, there are chances that the Affirm stock price will bounce back in the coming months, especially if the Federal Reserve turns dovish. The recent strong jobs numbers have made many investors to predict that the Fed will likely continue hiking interest rates. But with other parts of the economy weakening, we can’t rule out a situation where Affirm stages a recovery in line with other growth stocks.
The main risk for Affirm is where the Fed will maintain high-interest rates in the coming months if inflation remains stubbornly high. Such a situation will make the cost of financing rise significantly in 2023. This is notable because Affirm depends on money borrowed in the market. As rates rise, the company makes thinner margins. In a statement, the company’s CEO said:
“The trend should be expected to be towards more interest-bearing loans, but we’re certainly still very much in the business of finding ways of offering consumers magical deals that contain no interest at all, which is obviously far more valuable now that the overall borrowing cost for consumers went up a lot.”
Affirm stock price forecast
The daily chart shows that the Affirm stock price crashed hard after the earnings. The exact opening price will be at $12.66, the lowest point since January 20. It has plunged below the 23.6% Fibonacci Retracement level and all moving averages.
Therefore, the outlook for the Affirm share price is bearish, with the next key support level being at $10. This decline will happen mostly because of the lingering negative headlines in the coming days. However, a move above the key resistance point at $18 will invalidate the bearish view. It will signal that there are more sellers left in the market.