Is this BNPL leader a buy?

It’s time to visit a popular commerce company. Here is the break down of $AFRM, otherwise known as Affirm.


Current Price: $94.63

52/Wk High: $146.90

52/Wk Low: $46.50


Market Cap: $25.1 Billion

3 Month Performance: 51.59%


Read below for break down!


Affirm ($AFRM) is a leading digital commerce platform that allows customers to purchase a product and make payments over time, a trend that has been nicknamed ‘buy now, pay later’ by the financial world.


Affirm’s platform continues to grow in popularity and its integration is seen in a vast array of companies including Walmart, Peloton, Expedia, Adidas, Shopify, and now Amazon.


The company is led by CEO and founder Max Levchin. Levchin has been an icon of the commerce and digital payments space after co-founding PayPal in 1998 and working as CTO of PayPal up until his departure in 2002.


Furthermore, Affirms management team is made up of leaders boasting experience from the likes of Toyota, Lending Club, PayPal, Venmo, Amazon, Braintree, GE Capital, Merrill Lynch, Morgan Stanley, and more.


In recent news, Affirm announced a major partnership with Amazon ( $AMZN ) that will allow approved Amazon customers to split the entire cost of their purchase into monthly payments if the total cost is over $50.



Affirm’s management team was upbeat about the partnership.


“By partnering with Amazon we’re bringing the transparency, predictability, and affordability that Affirm provides today to the millions of people who shop on Amazon.com in the U.S.,” Senior Vice President of Sales Eric Morse said.


The partnership sent Affirm stock flying over 45% Monday and led Bank of America to call the deal an “unambiguous positive” for the company.


The bank went on to note that the deal shines a light on the company’s “technological leadership and strong reputation in the BNPL market.” while maintaining a buy call on the stock according to CNBC.


Earlier in August, Affirm completed its third asset-backed securitization at a value of $500 million. According to management, the securitization will provide the company with “even greater flexibility to support our growth in 2021 and beyond” and market Affirms most efficient execution yet.


Exploring past acquisitions, Affirm closed their acquisition of Returnly on May 3rd, in a cash and equity deal valued at $300 million. Returnly is a financial technology company that provides direct-to-consumer companies the proper technology to offer a quick and simple product return process.



“We have demonstrated how Affirm can accelerate growth by helping merchants reach new customers and drive conversions. With Returnly, Affirm addresses the full shopping journey by enabling seamless return experiences that drive loyalty and satisfaction,” Levchin said.


Rounding out acquisitions, Affirm acquired PayBright for CAD $340 million in mid-December. PayBright is Canada’s leading buy now, pay later platform. According to management the acquisition will increase Affirm’s North America footprint and accelerate the scaling process.



Shifting into the ‘buy now, pay later’ market, Grand View Research predicts the global BNPL industry will achieve a market value of $20.40 billion by 2028, marketing a 22.4% CAGR throughout the next seven years.


Furthermore, Affirm continues to see increased competition. Taking a look at US Mobile Payment Solutions and BNPL app downloads, Affirm made up 78% of all downloads in Q4 of 2018. Jumping ahead to today, Affirm made up just 16% of Payment Solution and BNPL app downloads through the US in Q1 of 2021.



Digging into the numbers, Affirm missed Q3 2021 expectations with an EPS of $-1.06, lower than the analyst’s EPS consensus estimate of $-0.29. On a quarter-over-quarter basis, EPS declined significantly from the Q2 2021 level of $-0.45.



Revenues on the other hand continued to expand with Q3 revenues totaling $230.7 million, representing a strong 67% year-over-year jump. According to leadership, revenues were driven by “increases in network revenue and interest income”.



Gross merchandise volume (GMV) also continued to grow, with GMV increasing by 83% year-over-year to a strong $2.3 billion. Excluding the recall of Peloton products, Affirm noted that GMV expansion would have increased by 100% year-over-year.



Sifting through Affirm’s user base, active merchants more than doubled throughout the quarter to a strong 12,000 and counting while active consumers expanded by 60% to a sizable 5.4 million in Q3.


While revenues, GMV, and customers continued to grow Affirm reported a sizable operating loss of $169.5 million. The operating loss is significantly larger than the Q3 2020 level of $81.5 million and was attributed to IPO compensation costs.


On the flip side, adjusted operating income improved, totaling $4.9 million for the quarter. For comparison, the Q3 2020 adjusted operating income was a loss, totaling $-70.7 million.



Net loss continued to deepen as well with the Q3 2021 net loss totaling $247.2 million compared to the 2020 level of $85.6 million. The significantly larger loss was attributed to IPO and acquisition costs.


Shifting into margins, operating margin worsened from -58.9% to -73.5% all the while adjusted operating margin improved from -51.1% to a better 2.1%.


Management was upbeat.


"Affirm’s strong third-quarter results reflect continued progress toward building the most valuable and transparent financial network for consumers and merchants," Levchin said.


Affirm increased guidance as well, now expecting GMV to land within a range of $2.20 billion to $2.25 billion in Q4. Revenues are expected to land within a range of $215 million to $225 million.


As for the full year, leadership predicts FY 2021 GMV to land within a range of $8.01 billion to $8.06 billion and for total revenue to land within a range of around $824 million to $834 million.


Shifting into the balance sheet the numbers are solid.


Total Debt: $2.002 Billion


Total Liabilities: $2.362 Billion


Total Assets: $4.766 Billion


Cash & Short Term Inv: $1.624 Billion


On a valuation basis, Affirm does trade at a premium.


Price to Sales: 38.70x


Price to Book: 9.67x


Given the numbers, the analysts are neutral with a mean price target of $87.78/share, representing a -7.41% downside.


The high price target is $120.00/share, representing a 26.58% gain, while the low price target is $55.00/share, representing a -41.99% downside.


The big money is quite involved with 83.01% of Affirm ( $AFRM ) being owned by institutions. Top holders include GIC Private Limited, Baillie Gifford & Co., and Lightspeed Venture Partners.


On a technical basis Affirm recently made a sizable upside move. According to the six-month charts, the MACD is moving with strong upside momentum within a range of 2.53 up to 5.52.