Affirm Holdings' (AFRM 1.31%) stock price tumbled 21% on Aug. 26 after the buy now, pay later (BNPL) services provider posted its fiscal 2022 fourth-quarter earnings report for the period ended June 30. Its revenue rose 39% year over year to $364.1 million, which beat analysts' estimates by $8.5 million. However, its net loss widened from $123.4 million to $186.4 million, or $0.65 per share, which missed the consensus forecast by $0.08.

Affirm only expects its revenue to rise 28% to 35% year over year in the first quarter of fiscal 2023 and to grow 25% to 33% for the full year. Analysts had been anticipating 45% and 46% year-over-year revenue growth in the first quarter and the full year, respectively. The company also expects its operating margins to remain negative by both generally accepted accounting principles (GAAP) and non-GAAP measures throughout fiscal 2023.

Three friends take a selfie in a store.

Image source: Getty Images.

Affirm's gloomy outlook was disappointing, but some investors might be wondering if its stock has finally bottomed out at a 50% discount to its initial public offering price. Let's review the bear and bull cases for Affirm to find out.

Why do the bears hate Affirm?

The bears will claim the entire BNPL market is a house of cards because it facilitates "subprime microloans" for lower-income consumers. Instead of routing payments through a major credit card network, BNPL platforms break a single purchase into smaller installment plans, which are technically tiny loans.

That approach enables Affirm to serve a lot of consumers who can't get approved for traditional credit cards, but its delinquency rates could also skyrocket during a recession. Its delinquency rates remain in the low-single-digits for now, but they've been gradually trending higher in fiscal 2022 and 2023.

Affirm's deliquency rates over the past four years.

Image source: Affirm.

As Affirm's delinquency rates gradually rise, its revenue growth is decelerating and its operating and net losses are widening. Affirm expects that slowdown to continue throughout fiscal 2023 as the macroeconomic headwinds persist.


FY 2020

FY 2021

FY 2022


$509.5 million

$870.5 million

$1.35 billion

Growth (YOY)




Operating income (GAAP)

($107.8 million)

($383.7 million)

($866.0 million)

Operating income (non-GAAP)

($68.3 million)

$14.3 million

($78.3 million)

Net income (GAAP)

($112.6 million)

($441.0 million)

($707.4 million)

Data source: Affirm. YOY = Year over year.

If Affirm were the only BNPL player in town, it could scale up its business and potentially narrow its losses. Unfortunately, Affirm already faces fierce competition from other big platforms like PayPal Holdings' Pay in 4 and Paidy services, Klarna, and Afterpay, which was acquired by Block earlier this year. Visa and Mastercard also launched their own BNPL services over the past year.

Affirm will need to keep its merchant fees and interest rates low to fend off those competitors -- but doing so will likely prevent it from ever breaking even. That's worrisome, because the company's cash and cash equivalents fell 14% year over year to $1.26 billion at the end of fiscal 2022, while its elevated debt-to-equity ratio of 1.7 doesn't give it much room to raise fresh cash at reasonable rates.

Why do the bulls still believe in Affirm?

The bulls will point out that Affirm continues to grow like a weed. Between the fourth quarters of fiscal 2021 and 2022, its number of active merchants soared from 29,000 to 235,000 (mainly driven by a new partnership with Shopify) as its active consumers surged 96% to 14 million.

It's also continued to gain other big partners -- including Amazon, Walmart, Target, and American Airlines Group. That diversification significantly reduced Affirm's dependence on the struggling connected fitness product maker Peloton Interactive, which was once its single largest merchant.

There also could be plenty of room for Affirm and its BNPL competitors to grow without trampling each other. Grand View Research still expects the global BNPL market to grow at a compound annual growth rate (CAGR) of 26% from 2022 to 2030 as more Gen Z and millennial shoppers choose BNPL options over traditional credit cards. Therefore, Affirm merely needs to capture a portion of this growing market instead of going toe-to-toe against fintech giants like Block and PayPal.

Lastly, Affirm's stock finally looks reasonably valued at four times this year's sales. When it hit its all-time high of $168.52 last November, it was valued at 36 times the sales it would generate in fiscal 2022. Therefore, its lower price-to-sales ratio could make it a compelling takeover target for its fintech rivals or even big e-commerce players like Amazon or Shopify.

Its weaknesses still eclipse its strengths

Affirm isn't doomed yet, but it's still operating like a start-up instead of a publicly traded company. It continues to burn hundreds of millions of dollars every year and hasn't proven that its business is sustainable. That's probably why Klarna has been reluctant to go public, and why many other BNPL platforms are integrated into larger fintech platforms. Unless Affirm can stabilize its revenue growth and grow its margins, I'd avoid its stock and stick with better-run fintech companies instead.