Affirm is poised for significant benefits stemming from increased gross merchandise volume growth and reduced loan costs as interest rates trend downward, as identified by Wedbush Securities in a recent analysis. The buy-now, pay-later service provider has received an upgrade to a neutral rating from previously being underperforming, with its price target raised to $45 from the former $25 mark.
Following this announcement, Affirm's stock experienced a 4.6% increase on Monday, reflecting positive investor sentiment. Analysts David Chiaverini and Brian Violino noted that a 100-basis-point reduction in rates could lead to a 40-basis-point enhancement in the company's revenue, when transaction costs are considered.
This improvement is anticipated to manifest with a lag of two to three quarters. "Lower rates, as indicated by the forward curve, are expected to benefit Affirm in terms of gross merchandise volume as we move into fiscal 2025," the analysts commented, highlighting the optimistic outlook. In their reassessment, Wedbush has adjusted its fiscal 2025 GAAP loss per share estimate down to $0.23 from $0.60, forecasting that Affirm will achieve profitability in the third quarter instead of the fourth quarter as previously expected.
Analysts from Capital IQ project a GAAP per-share loss of $0.55 for the current year, signifying a shift in expectations regarding Affirm's financial turnaround. Additionally, there is potential for Affirm to ease its underwriting standards, which could stimulate an RLTC margin within the 3% to 4% range.
This adjustment aims to prevent an excessive expansion beyond desired levels and may drive further growth in gross merchandise volume, as suggested by analysts. Chiaverini and Violino indicated that credit quality has not only met but consistently exceeded expectations in the current high-rate environment.
This performance is partially attributed to the short duration of Affirm's product offerings. They remain confident that solid credit quality will persist at least in the near term, banking on a base case scenario where the economy achieves a soft landing. Nevertheless, the analysts acknowledge the looming possibility of a recession, in light of recent comments from various retailers regarding consumer health.
"If our base case unfolds as anticipated, we predict that companies like Affirm will operate in a more favorable market environment," they mentioned. Moreover, a recent partnership with Apple Pay is likely to serve as an additional catalyst for growth for Affirm, enhancing its positioning in the market.
The firm’s B2B product, Affirm Money, combined with ambitious plans for expansion in the UK, aims to support sustained, albeit modest, gross merchandise volume growth in the long term, although this is not expected to materialize until after fiscal 2025, the analysts concluded. Price: 49.22, Change: -0.04, Percent Change: -0.08.