Affirm Q4 preview: Where next for Affirm shares?

Affirm is proving to be a popular partner for major players looking to offer buy now, pay later services, having recently started working with the likes of Shopify and Amazon. We explain what to expect from its earnings and consider how Affirm shares could react.

Charts (5)

When will Affirm release Q4 results?

Affirm Holdings is scheduled to release its fourth quarter and full year earnings on Thursday September 9.

Affirm Q4 earnings preview: what to expect from the results

Buy now, pay later (BNPL) firm Affirm delivered stellar growth in its last set of quarterly results. Growth in Gross Merchandise Value – the total value of the goods bought using its service - accelerated to 83%, it doubled the number of merchants offering its service to 12,000, and customer numbers jumped 60% to 5.4 million.

This momentum should have continued in the fourth quarter, with founder and CEO Max Levchin stating the company was ‘just getting started’ as it looks to become the partner of choice for retailers looking to provide flexible payment options to their customers to boost sales. BNPL services are proving particularly popular among younger consumers and Affirm and others that allow consumers to pay in instalments are gaining an edge over other forms of lending such as credit cards. The fact BNPL allows people to avoid the interest costs and fees associated with the likes of credit cards means it is expected to continue growing as an alternative lending option for consumers over the coming years.

There is plenty of fuel that should allow growth to accelerate further. Firstly, demand for goods and services hard hit by the pandemic such as travel and events is only just starting to recover and is ripe to be disrupted by the BNPL sector, providing further scope for faster growth.

Secondly, the lost sales from the problems with Peloton’s Tread and Tread+ exercise machines should be short-lived considering the company swiftly relaunched a new and improved version last month. Peloton recalled the equipment and halted sales and deliveries following severe safety problems, which in turn reduced the number being bought using BNPL. Affirm lost $3.5 million in sales because of this in the third quarter.

Thirdly, Affirm should start to see the initial boost from its expansion of its deal with Shopify start to filter through in the fourth quarter. Having allowed just 100 Shopify merchants offer its BNPL service during the initial trial, this started to be rolled out to 10,000 of them in June – a huge addition to Affirm’s current merchant base.

Lastly, the announcement that Affirm has struck a deal with Amazon to provide its BNPL service to customers at checkout has sparked excitement among investors. Affirm shares rocketed over 43% higher the day after the news broke. The service is being offered to a select group of customers at present but is set to become more broadly available ‘in the coming months’. This will undoubtedly be a primary focus in the conference call as there have been few details and investors will be eager to know the speed and scale of the partnership’s ambitions.

Affirm is aiming to deliver revenue of $215 to $225 million and an adjusted operating loss of $55 to $50 million in the fourth quarter. If achieved, that will allow it to achieve its full year ambitions targeting revenue of $824 to $834 million and a loss of $55 to $50 million.

Wall Street is expecting Affirm to beat the top-end of its topline target with revenue of $226.4 million in the fourth quarter but is anticipating a much wider loss of $86.7 million.

Also watch how its guidance for the new financial year compares to analyst expectations. Wall Street is currently expecting Affirm to deliver annual revenue of $1.16 billion in the year to June 2022 and a adjusted operating loss of $179.7 million.

The 13 brokers that cover the stock have an average Buy rating on Affirm, although the recent surge following news of the deal with Amazon means the target price of $90.31 now sits some 3% below the current share price. It would not be surprising if we saw brokers re-evaluate their stance on Affirm after the results considering the momentum of its financial performance and its prospects. Still, it is worth noting that bulls backing Affirm are banking on its growth potential considering the company is still loss-making and boasts a lofty valuation of over $24.6 billion – some 29x forecasted annual revenue.

With that in mind, rivals like PayPal and Square, the last of which is buying Afterpay for $29 billion, are currently trading at much lower ratios and are both profitable. Plus, brokers have target prices on the two stocks that implies there is over 12% upside potential for PayPal and Square.

Where next for the Affirm share price?

The Affirm share price has certainly seen a fair amount of volatility since going public early this year. After surging to a high of 146.90 within a month of it’s IPO, the price fell to an all time low of $46.50 in May. 

Since then the price has been steadily climbing higher trading in an ascending channel. The price broke out of this channel surging to $101 last week.  

The price is trading in a holding pattern capped on the upside by 101 and on the lower band by 90. The RSI is in overbought territory but consolidation at these levels is bringing the RSI back below 70. 

A breakout trade could be a good play here. Buyers could look for a move above $101 to target $110 a level last seen in February. 

Sellers could look for a break below $90, which could open the door to a deeper selloff towards $80 the upper band of the rising channel. 

How to trade Affirm shares

You can trade Affirm shares with City Index in just four easy steps:

  1. Open a City Index account, or log-in if you’re already a customer.
  2. Search for ‘Affirm’ in our award-winning platform
  3. Choose your position and size, and your stop and limit levels
  4. Place the trade 

Build your confidence risk free

More from Equities

Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.