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Here's Why Affirm Is Falling After Its First Earnings Report

By Matthew Frankel, CFP® - Feb 12, 2021 at 11:31AM

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The recent fintech IPO issued strong results, but apparently they weren't strong enough.

What happened

The stock market was mostly flat on Friday, with all three major indexes moving up or down by 0.1% or less as of 11 a.m. EST. However, recent fintech IPO Affirm Holdings (AFRM -15.33%) was a big underperformer, with shares down by 9% for the day after falling as much as 12% earlier in the day.

So what

Affirm, which provides buy-now-pay-later, or BNPL, services for merchants, just issued its first earnings report since its IPO, and most of the news looks strong. Affirm's merchant base grew by 90% year over year, and revenue soared by 57%. The active customers using Affirm to finance purchases grew by 52% over the past year. In the quarter ended Dec. 31, 2020, Affirm financed gross merchandise volume (GMV) of $2.1 billion. In most key metrics, including revenue, Affirm handily beat analyst expectations.

Man with confused expression.

Image source: Getty Images.

Now what

The most likely reason for the drop is that Affirm's stock is priced for phenomenal growth. Since its IPO just last month, Affirm's stock has risen by more than 180%, so it's fair to say that investors had extremely high expectations to justify the lofty valuation.

Even so, Affirm's results look strong in virtually every way. The business is growing rapidly, its operating loss is narrowing quickly, and its full-year guidance is strong. Patient long-term investors should take a step back and pay attention to Affirm's results, not today's stock price movement, which simply amounts to giving back a tiny portion of its recent gains.

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