What happened
Affirm Holdings (AFRM 2.61%) experienced another difficult month in December as its stock price dropped 20.6%, according to S&P Global Market Intelligence.
The buy now, pay later (BNPL) company finished the month well below the S&P 500, which was up about 5.6% in December. It hasn't been a great start to the new year for Affirm, either, as it's already down about 25% in 2022 as of Jan. 10, trading at about $75 per share.
Image source: Getty Images.
So what
Affirm, a fintech that allows consumers to make installment payments on purchases via its app, went public in January 2021 at $90 per share. It is currently trading below that at roughly $75 per share -- a one-year decline of roughly 16%. Its stock price soared to $176 per share in November and has come crashing down over 50% since -- indeed a wild ride for investors.
But this relatively new company, founded in 2012, has shown sharp growth in revenue and customers over the past year. In its most recent quarterly report, its fiscal first quarter ended Sept. 30, 2021, Affirm saw a 55% increase year over year in revenue to $269.4 million. Gross merchandise volume shot up 84% to $2.7 billion while the number of active users increased 124% to 8.7 million. Also, the total number of merchants that accept Affirm jumped to more than 102,000, up from about 6,500 a year ago. This is due to a strategic partnership it formed with Shopify last year to be on its platform.
However, the company is operating at a net loss of $306 million as of the end of the first quarter, due to higher operating expenses from increasing costs associated with acquisitions and investments in technology, marketing, and overall operations.
The sharp decline in its stock price stems from a few different factors. Among them, Affirm, along with other payment companies, took a hit earlier in the month on concerns about inflation and the supply chain issues on the economy. Also, there was an overall sell-off among growth stocks, especially for those like Affirm with skyrocketing valuations.
But the biggest impact was the fact that a federal watchdog, the Consumer Financial Protection Bureau (CFPB), said it was launching an inquiry into the practices and potential risks of BNPL companies, including Affirm.
Now what
The CFPB inquiry, if it leads to any changes to the industry or the BNPL service, could certainly have a significant impact on the stock. So keep an eye on that in 2022. It could hang over the stock, at least until something comes out of it, if anything.
Otherwise, the valuation, as measured by the price-to-sales ratio, has come way down from over 40 to around 20. Also, with the addition of Amazon as a partner, among other factors, Affirm increased its revenue targets for 2022. In addition, the company is preparing to roll out its Affirm Debit+ card in 2022. In the longer term, BNPL is an industry poised for growth, expected to grow to $995 billion by 2026 from $226 billion in 2021, according to Juniper Research.
