Can Fintech Affirm Holdings Rebound After Recent Skid?

Shares of Affirm Holdings NASDAQ: AFRM were trading higher mid-session Tuesday, as the stock attempted a rebound from a decline that began on November 8, as the stock pulled back from a high of $176.65. 

The San Francisco-based company operates a platform for digital and mobile commerce. Its offering is a point-of-sale payment system for use by merchants and consumers. Affirm’s revenue comes from virtual card networks, as well as merchant networks. Most of the revenue comes from the U.S. 

Affirm touts a “buy now, pay later” model that differs from traditional credit cards. The headline on its Web site reads, “Pay at your own pace. When you buy with Affirm, you always know exactly what you’ll owe and when you’ll be done paying. There are no hidden fees—not even late fees.”

The fintech company, founded by noted Silicon Valley entrepreneur Max Levchin, went public at $49 on January 15. The stock quickly rocketed to close at $117. It’s currently trading near $125. 

The stock is up 90.72% in the past three months, but with the current pullback, it’s down 16.54% in the past week and 20.42% in the past month. 

Affirm has been on a wild ride in the past couple of weeks. On November 8, after rallying to a new high, the stock pulled back and ended the week with a decline of 9.28%. Last week, shares dropped another 8.61%. 

Notably, trading volume was below average in both of those weeks, suggesting that institutional investors were just taking some profits, not initiating a bigger selloff. 

Consistently Beating Revenue Views

The company reported quarterly results on November 11, topping analysts’ views on the top line. Affirm lost $1.13 per share on revenue of $269.4 million, up 55% from the year-ago quarter. Analysts had expected revenue to be ​​$248.7 million.

According to MarketBeat earnings data, Affirm topped revenue views in each of the past three quarters. 

Revenue has grown at double- or triple-digit rates in each of the past eight quarters.

So given the strong revenue growth, what factors are behind the selling? 

One thing is a $1.5 billion offering of convertible debt.

In its announcement, the company said, “The Notes will not bear regular interest, and the principal amount of the Notes will not accrete. When issued, the Notes will be senior, unsecured obligations of Affirm. The Notes will mature on November 15, 2026, unless earlier repurchased, redeemed or converted in accordance with their terms prior to such date. Affirm may not redeem the Notes prior to November 20, 2024.”

The notes carry a 0% coupon, meaning holders will not receive interest payments on a regular basis, is as the case in many other examples of corporate debt. 

The stock may have skidded because a large convertible debt offering may dilute the positions of existing shareholders. 

Debit+ Product Being Tested

Nonetheless, there’s potential ahead. In the recent quarterly earnings call, CEO Levchin discussed a new product being beta-tested, Debit+. 

“Affirm's core strengths lie in risk management, capital markets execution, and putting our ability to solve hard technical problems toward building great products and creating consumer delight,” said Levchin. 

He added, “Let me update you on the progress we've made on these product sets. After being put through its paces by hundreds of Affirmers, our Debit+ card is out in the wild, being further tested by consumers as we make our way through our waitlist and get it ready for gen pop launch in the new year.”

At this time, due to the correction, the stock is not in buy range. 

But as investors continue to have confidence about prospects for new fintech firms, this is one to watch as its correction eventually bottoms out and begins to etch the right side of its current correction.