Affirm (AFRM) Down 15% Despite Raising Guidance: Here's Why

Affirm Holdings, Inc.’s AFRM shares crashed 15% yesterday, following a report from Bloomberg stating that the company halted an asset-backed security sale. Even though the buy now, pay later firm came out with a business performance update with rising guidance, it failed to impress investors as the report of a major investor pulling out from the sale due to market volatility seeded doubts in investors.

Investors of asset-backed security offerings (essentially bundles of loans) get paid from consumers who pay off the loans. Due to government assistance, stimulus checks, accumulated savings during the pandemic and other reasons, consumers were considered to be in a favorable position to pay off their loans. Hence, investors were up for buying these bundles of loans. Yet, the rising market volatility is changing the scenario. High inflation, increasing interest rates, global supply shortage and other factors are affecting consumers, making investors unsure about these consumer debts.

Given this market condition, Affirm’s reassuring numbers failed to impress investors. Let’s take a look at its guidance revisions.

AFRM raised its fiscal 2022 revenue guidance to at least $1,310 million from the previous projected range of $1,290-$1,310 million. The new guidance is marginally lower than the Zacks Consensus Estimate, which is pegged at $1,320 million. AFRM boosted its revenue less transaction costs’ guidance to at least $600 million from the previous range of $585-$595 million. Affirm also reduced the expectation of adjusted operating loss as a percentage of revenues to 11-13% from 12-14%.

The company expects gross merchandise volume for fiscal 2022 to be at least $14.78 billion, up from the previous guided range of $14.58-$14.78 billion. AFRM had around $9.3 billion of fully committed funding capacity as of Feb 28. Even though this new guidance reflects positive movement within the firm, the overall market volatility is too high to overlook.

Over the past year, shares of Affirm declined 67.8% compared with an 11.2% fall of the industry it belongs to.

Image Source: Zacks Investment Research

Zacks Rank & Key Picks

Affirmcurrently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the Business Services space include Accenture plc ACN, Vontier Corporation VNT and CleanSpark, Inc. CLSK, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Accenture has been steadily gaining traction in outsourcing and consulting businesses. Based in Dublin, Ireland, Accenture’s bottom line for 2022 is expected to jump 19.8% year over year. ACN's earnings beat estimates in each of the last four quarters, with an average of 5.3%.

Vontier — based in Raleigh, NC — delivers technical equipment to clients all around the globe. VNT’s bottom line for 2022 is likely to rise 8% year over year. Vontier’s earnings beat estimates in each of the last four quarters, with an average of 10%.

CleanSpark — headquartered in Henderson, NV — has a digital currency mining business and provides energy technology solutions. The consensus mark for CLSK’s 2022 earnings is pegged at $1.33 per share, indicating a significant improvement from a loss of 41 cents a year ago. CleanSpar’s earnings beat earnings estimates thrice in the last four quarters and missed the same once.

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