Affirm shares are set to drop another 40% as rates rise and economic growth slows, Wedbush says
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According to Wedbush, now is not the right time to invest in Affirm, a buy-now, pay-later company. Affirm’s analyst David Chiaverini gave it an underperform rating with a target price of $15. That would mean a 40% drop in value from Tuesday’s close. Chiaverini stated in a Tuesday report that they were concerned about Affirm’s ability to achieve GAAP profitability. He also noted the increasing competition in buy now, and pay later (BNPL) spaces, as well as industry forecasts calling on slowing ecommerce sales. These are factors which will impact Affirm’s gross product volume or GMV. Also, Chiaverini expressed concern over Affirm’s ability to meet its capital cost, as it increases funding costs. Affirm became public in January 2021, as more consumers, with cash from several government stimulus packages, increased their spending. In addition to a strong rebound in U.S. business activity, the company’s initial public offering coincided with the Covid-19 pandemic. Combining this with low interest rates historically and unprecedented Federal Reserve monetary stimulation, the stock soared more than 100% within its first year. But this year, it has been an entirely different story. This year, shares in Affirm are lower by more 75% than usual and trade at 86% of their peak level. The analyst stated that “a recession could result in an increase of unemployment, which could affect consumer demand, credit metrics, and other indicators.” Affirm had “not yet required to take any significant action” to respond to rising rates. … Looking out over the longer term (1 year plus), Affirm may have to take some action on the fee/consumer APR side of the business to remain competitive.” Chiaverini said that Affirm may be under pressure due to increased competition from the “buy now, pay later” space. Traditional consumer finance companies are introducing point-of sale and post-sale instalment lending products. A new, formidable competitor was also revealed this week. The analyst also wrote that Apple recently revealed its pay-in-4 product, which increases the threat to the market. “Affirm’s pay-in-four product was 20% of GMV at the latest quarter. It is also the fastest-growing segment. Margins are getting cut and big merchants pushing hard for economics. —CNBC’s Michael Bloom contributed to this report.
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