On Wednesday, Morgan Stanley upgraded Affirm Holdings Inc. (NASDAQ:AFRM) stock, moving the rating from Underweight to Equalweight.
The firm also significantly increased the price target for the company's stock, setting it at $37.00, up from the previous target of $20.00. This adjustment reflects a more positive outlook on the company's potential to attract a higher-income customer base.
The upgrade by Morgan Stanley was influenced by several strategic moves made by Affirm in recent months. The company has improved its distribution channels by making its services available through Apple (NASDAQ:AAPL) Wallet. Additionally, Affirm has enhanced its promotional efforts with more merchant and manufacturer-sponsored zero percent and low-interest rate offers.
These developments, along with better pricing strategies that leverage lower interest rates to drive higher utilization of promotional offers, have positioned Affirm to appeal to a more affluent demographic.
Morgan Stanley noted that Affirm's previous customer base trended towards lower income and credit quality, which the firm believed could restrict the company's long-term growth. However, the recent initiatives undertaken by Affirm are expected to change this trajectory.
By attracting higher-income users, Affirm is likely to broaden its service offerings to retain this customer segment, potentially introducing products that resemble traditional revolving credit and other financial services.
The analyst's comments highlight the company's progress in assembling the necessary components to expand its user base. These include better distribution, promotion, and pricing mechanisms that together create a more compelling proposition for higher-income consumers. The firm anticipates that these efforts will enable Affirm to better attract and retain more affluent customers, which could be beneficial for the company's growth.
Affirm Holdings Inc. is now positioned to potentially expand its offerings to better serve and retain these higher-income customers, according to Morgan Stanley. The firm's revised price target and upgraded rating reflect this more optimistic view of Affirm's growth prospects and strategic direction.
InvestingPro Insights
To complement Morgan Stanley's upgraded outlook on Affirm Holdings Inc. (NASDAQ:AFRM), recent data from InvestingPro provides additional context to the company's financial performance and market position.
Affirm's revenue growth remains robust, with a 46.29% increase over the last twelve months as of Q4 2023, reaching $2.32 billion. This strong top-line growth aligns with Morgan Stanley's positive view on the company's potential to attract higher-income customers and expand its service offerings.
However, it's important to note that despite the revenue growth, Affirm is not yet profitable. An InvestingPro Tip highlights that analysts do not anticipate the company will be profitable this year. This is reflected in the negative operating income of -$607.33 million over the last twelve months.
On the market front, Affirm's stock has shown significant volatility and strong performance. An InvestingPro Tip indicates that the stock price movements are quite volatile, which investors should consider. Nevertheless, the stock has delivered a robust 119% return over the past year, showcasing investor confidence in the company's growth strategy.
For those seeking a more comprehensive analysis, InvestingPro offers 5 additional tips for Affirm, providing deeper insights into the company's financial health and market position.
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