Buy-now/pay-later (BNPL) leader Affirm (AFRM 7.56%) is on the move again, jumping 10.2% on Tuesday as the company benefited from a broad upswing in BNPL and fintech stocks, in part on a weaker-than-expected jobs report, which could persuade the Federal Reserve to continue to lower interest rates.
However, Affirm also provided some details on its business, including its five-year partnership extension with Amazon in a fireside chat with CFO Rob O'Hare that seemed to please investors.
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What's behind Affirm's pop
The gains in Affirm stock came in two stages on Tuesday. The stock surged at the open, seemingly in response to a downbeat jobs report, and then jumped again after noon, which appeared to be prompted by comments from the fireside chat today.
Other BNPL and fintech stocks, including Sezzle and Lemonade, also jumped today, benefiting from a share buyback announcement and an upgrade, respectively. Investors may see the jobs report as a boon for the BNPL sector as it could lower interest rates, which tends to encourage borrowing, and a challenging job market could spur demand for BNPL loans, which is good for Affirm as long as its credit model holds up.
CFO O'Hare said that the business is performing in line with expectations and he was bullish on continued share gains even as the company faces difficult comparisons in the e-commerce market. He also called the Amazon renewal a "win-win," saying that terms would remain mostly the same and that the partnership has driven new customers for both businesses.
Affirm originally announced the five-year extension with Amazon in its third-quarter earnings report in November. O'Hare also dismissed third-party data that led to a 7% decline last week as having "significant tracking errors," and said the company is delivering healthy quarter-to-date trends.
In response to the update, the BNPL stock got a bullish note from Evercore ISI, which reiterated its outperform rating and maintained a price target of $95.
NASDAQ: AFRM
Key Data Points
Is Affirm a buy?
The BNPL sector is still risky, and there's a reason why investors have treated these stocks cautiously. Despite their growth rates, credit risk is likely to rise if the labor market continues to struggle, and there are signs of weakness in the credit market, including rising auto delinquencies.
Overall, Affirm is delivering strong growth, with revenue up 34%, and it is profitable with a generally accepted accounting principles (GAAP) operating margin of 7% in its most recent quarter. The Amazon extension also reaffirms its industry leadership.
Credit trends remained steady in the quarter as well, and delinquency rates are in line with previous years. Overall, getting some exposure to Affirm isn't a bad idea for growth stock investors, but they should also be mindful of the credit risk facing the company, given the volatility in the economy.
