Please ensure Javascript is enabled for purposes of website accessibility

Why Affirm Holdings Stock Fell 14% in May

By Jeremy Bowman - Jun 4, 2021 at 8:15AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of the buy now/pay later specialist slipped after it reported earnings.

What happened

Shares of Affirm Holdings (AFRM -1.98%), the fintech company that specializes in buy now/pay later (BNPL) financing, finished last month down 14%, according to data from S&P Global Market Intelligence. The stock slipped after its third-quarter earnings report didn't quite live up to expectations and as pressure remained on high-priced growth stocks.

The chart below shows the stock's performance for the month.

AFRM Chart

AFRM data by YCharts

So what

Affirm, which IPO'd in January, has had a volatile time on the market thus far. The stock initially rocketed to nearly $150 before losing more than half of its value as investors rotated out of growth stocks on concerns about valuations and rising interest rates.

The Affirm card

Image source: Affirm.

In its third-quarter earnings report, which came out May 10, Affirm posted 67% revenue growth to $230.7 million, which easily beat analyst estimates of $198.2 million. The company also reported gross merchandise volume (GMV) growth of 83%, or more than 100% when backing out Peloton, its biggest partner, which shows the business is rapidly building momentum.

However, investors seemed to be less impressed with Affirm's bottom-line performance; it reported $5 million in adjusted operating income and a per-share loss of $1.06 on a generally accepted accounting principles (GAAP) basis.

Bottom-line performance is important for Affirm because it's operating in a competitive industry against peers like Afterpay and Klarna, and it could see challenges from fintech leaders like Paypal and Square as BNPL is a fast-growing market.

Now what

Affirm's partnership with Shopify also shows promise as Affirm, which is sees itself as a credit card alternative, is the exclusive installment payment partner for Shopify and has already signed up more than 10,000 Shopify merchants. 

In its fourth-quarter guidance, Affirm called for revenue of $215 million to $225 million, which represents a sequential decline from the third quarter. Affirm blamed that partly on Peloton's treadmill recall, but the weak guidance helps explain the stock's post-earnings sell-off.

With its rapid growth, wide range of partnerships, and positioning as a credit card disruptor, Affirm has a lot going for it, but its valuation and potentially stiff competition seem likely to weigh on the stock at least for the near future. Its upside potential is appealing, but if the bull thesis doesn't materialize, the stock could certainly fall further.

Jeremy Bowman owns shares of Square. The Motley Fool owns shares of and recommends AFTERPAY T FPO, PayPal Holdings, Peloton Interactive, Shopify, and Square. The Motley Fool recommends the following options: long January 2022 $75 calls on PayPal Holdings, long January 2023 $1,140 calls on Shopify, and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Affirm Holdings, Inc. Stock Quote
Affirm Holdings, Inc.
AFRM
$34.21 (-1.98%) $0.69

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
379%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/09/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.