What happened
Shares of buy now, pay later company Affirm Holdings (AFRM -2.08%) dropped 38% in April, according to data provided by S&P Global Market Intelligence. General economic trends weighed on the company's stock as investors continue to be wary of companies highly affected by inflation and rising interest rates as well as pressure in consumer spending trends.
Affirm's price has fallen even further so far in May, losing another 18% of its value in the stock sell-off.
Image source: Getty Images.
So what
Affirm went public just over a year ago, and it's been up and down since then. It's run by an experienced management team led by Max Levchin, part of the PayPal Holdings founding team, with a compelling fintech premise that harnesses trends in shopping and technology to provide a service with practical value.
That's resulting in strong growth. In the second fiscal quarter (ended Dec. 31), revenue increased 77%, and gross merchandise volume (GMV) increased 115%. Affirm has bolstered its business with many partnerships and new products, such as an expanded partnership with Poshmark and some banking services, such as savings accounts.
It's also the exclusive buy now, pay later partner for both Amazon and Shopify, giving it access to a massive shopper audience and expanding its organic growth opportunities.
However, there have been some kinks in what looks like a solid trajectory. Losses piled up in the second quarter from $27 million last year to $160 million this year. Some investors are also questioning what kind of future there is for a company specializing in what might be a niche fintech business, especially when there seems to be a wide array of providers. Tied into that, there are fears about how well a buy now, pay later company can recoup its loans to credit card holders.
Now what
Affirm stock is now trading at about half its initial public offering price of $49. Part of that is the overall market negativity toward high-growth and fintech stocks, and part of that is related to the company's losses and questions about the business in general.
Management gave a business update in March and raised guidance from an original GMV projection of $3.61 million to $3.71 million to at least $3.71 million, and revenue from an original $3.25 million to $3.35 million to at least $3.35 million. It also said trending operating costs were better than expected, and that it has solid, multi-channel funding capabilities to underwrite its loans.
Affirm will report third-quarter earnings this week. While there's ongoing volatility, investors may want to wait on this stock.
