What happened
Shares of the buy now, pay later (BNPL) company Affirm Holdings (AFRM -1.34%) traded nearly 9% lower as of 1:28 p.m. ET today after a Wall Street analyst cut his price target on the stock this morning.
So what
Piper Sandler analyst Kevin Barker maintained a neutral rating on Affirm but lowered his price target from $32 per share to $28. Affirm trades at less than $19 per share.
Barker attributed the struggles of all consumer-facing fintech companies to the market's concerns over a looming recession that will hit sometime over the next 12 to 18 months. The analyst has dropped all estimates in the sector to account for "economic reality."
Like many fintech companies on the consumer side, Affirm has seen its stock sell off immensely as investors worry about a host of concerns including loan defaults. Affirm has played a big role in helping make the BNPL concept popular, in which consumers put no money down for purchases and then pay them off through multiple installment payments.
But even with credit conditions still benign, a survey from April suggested that 42% of BNPL users had made a late payment on at least one BNPL loan. It's hard to imagine things getting better from a credit perspective as economic conditions get worse.
Additionally, investors who buy Affirm loans are likely to request higher returns as interest rates rise and the environment gets murkier. That could force Affirm to price its loans higher, which would likely slow originations.
Now what
While Affirm has clearly been the driving factor behind the BNPL space, I am not interested in the stock right now considering the concerning credit trends seen in a more benign credit environment and the impact rising rates could have on the business model.
