On Wednesday, Needham initiated coverage on Affirm Holdings Inc. (NASDAQ: NASDAQ:AFRM) with a Hold rating. The firm cited a blend of positive and cautious factors influencing their neutral stance. Affirm, a "buy now, pay later" (BNPL) service provider, has established a diverse range of product offerings and secured key partnerships, including those with Amazon (NASDAQ:AMZN) and Shopify (NYSE:SHOP).
The BNPL market is anticipated to experience healthy growth, which bodes well for Affirm's business model. Despite this positive outlook, Needham has reservations due to Affirm's valuation, which is approximately 32 times the firm's fiscal year 2026 earnings per share estimate. The analyst also noted concerns over Affirm's elevated stock-based compensation expense, which accounts for 46% of the last twelve months' revenue.
Another factor contributing to the Hold rating is the increasing proportion of Affirm's revenue derived from interest and other lending-related income, which currently stands at about 65%. Needham believes that this could pose challenges to significant multiple expansion for Affirm's stock.
Needham remains open to revising their outlook on Affirm's shares. A potential upgrade could be considered if there's a decrease in the company's stock price or if revenue growth from merchant services or card network operations becomes a more dominant part of Affirm's financial narrative. As of now, the firm maintains a cautious but watchful eye on Affirm's performance in the evolving BNPL sector.
InvestingPro Insights
In line with the insights from Needham, Affirm Holdings Inc. (NASDAQ: AFRM) is navigating a dynamic market landscape. Through InvestingPro's real-time data, we observe that Affirm has a market capitalization of approximately $10.46 billion USD. The company's revenue growth is impressive, with a 29.35% increase over the last twelve months as of Q2 2024 and an even more robust quarterly growth rate of 47.94% in Q2 2024. However, the company's P/E ratio stands at -13.67, reflecting analysts' expectations that Affirm will not be profitable this year. This is underscored by an operating income margin of -46.65% for the same period.
InvestingPro Tips highlight the stock's high volatility and the significant price fluctuations experienced over the past months, with a 21.61% drop in the three-month price total return, contrasted by an 86.49% increase over the last six months. These metrics suggest that while the company is growing its top line, profitability remains a challenge, and stock price movements may continue to be quite volatile.
For those interested in deeper analysis, InvestingPro offers additional tips for Affirm, expanding on these insights. With an InvestingPro subscription, you can access a wealth of information to guide your investment decisions. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. Currently, there are 9 additional InvestingPro Tips available that could provide further clarity on Affirm's financial health and stock performance.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.