What Happened
Affirm Holdings (AFRM 5.31%) had an awful month in February as its share price sank by 34.7%, according to S&P Global Market Intelligence.
The "buy now, pay later" (BPNL) company lagged far behind the S&P 500, which was down 3.2% for the month, and the Nasdaq Composite, which fell 3.4%. Affirm was down about 63% year to date as of Friday.
Image source: Getty Images.
So what
While the tech sector broadly has been beaten down in recent months, few stocks were hit as hard as Affirm, which, as a BNPL provider, offers consumers a point-of-sale option to pay for their purchases in installments. Its shares have plummeted from a high of $168 on Nov. 4 to about $36 per share Friday -- a decline of 78%.
The company went public at $49 per share in January 2021, and experienced a meteoric rise during last year's tech sector boom. In Affirm's case, the rise was fueled in part by huge revenue gains, which led to more investors jumping on board until the shares became way overpriced. The company is still not profitable, and its price-to-sales (P/S) ratio climbed to a ridiculously high 43 in November. Since then, the P/S ratio has dropped back to around 8.
Affirm posted a 77% year-over-year increase in revenue to $361 million in its fiscal second quarter, which ended Dec. 31. All of its key performance metrics rose, including active consumers, up 150% to 11.2 million; active merchants, up 2,030% to 168,000; and gross merchandise volume up 115% to $4.5 billion. But its operating expenses continued to climb as well, up 141% in the quarter year over year to $557.2 million. The result was a net loss of $159 million, up from $26 million a year ago.
While revenue surpassed analysts' expectations, expenses were higher than expected, and the stock price plummeted some 40% in the days that followed. It also didn't help that top-line projections for fiscal Q3 weren't as high as expected, nor were the projections for the fiscal year revenue, given the deal Affirm inked this year to provide BNPL services on Amazon's platform.
Now what
Affirm has partnerships with a host of major retailers, including Amazon, Walmart, Target, and Shopify -- and has exclusive deals with Amazon and Shopify.
It's also rolling out an Affirm debit card this year that will be linked to the customer's bank account and allow them to pay in installments. Investors should watch how these deals impact the company's revenue over the next few quarters, and also pay attention to the impacts that inflation, geopolitical conflicts, and rising interest rates, among other forces, have on the economy.
