Affirm stock price has 2 key risks: here’ why I’m buying anyway
Affirm (NASDAQ: AFRM) stock price has crawled back in the past few days after the company published its financial results earlier this month. AFRM shares jumped to a high of $13.40 on Wednesday, the highest point in more than two months. It has jumped by over 50% from the lowest level this year.
Affirm growth slowing
Affirm business did well in the first quarter even as business conditions worsened. The company’s revenue of $380.98 million was better than the expected $371 million. However, Affirm’s slow annual growth of just 7.40% was significantly slower than its historical standards.
The same slow growth was seen in the number of active customers. Its customer count jumped to 16 million from 12.7 million in the same period last year. The average number of transactions per customer rose to 3.6.
Affirm outlook was relatively mild. It expects that its GMV in Q4 of its fiscal year to $5.20 billion and $5.35 billion. The revenue is expected to be between $390 million and $415 million.
Affirm’s business faces three key challenges ahead, as I wrote here. First, the biggest challenge is the rising competition in the industry. Companies like PayPal and Block are expanding their services in the country.
One of the top technology news of the first quarter was that Apple launched its Buy Now Pay Later (BNPL) product. This competition is coming at a time when the company is seeing slow growth.
The other risk is that the company is struggling to move to profitability. Transaction costs in the last quarter jumped by 24% to $214 million. In other words, while revenue jumped by just 7%, the company’s costs increased by 24%. The company expects that its transaction costs will be between $245 million and $255 million
Further, Affirm is expected to continue diluting its shares. The number of outstanding shares has risen from 103.5 million in 2021 to 292 million. It is expected to jump by 4% this year.
Affirm stock price forecast
The chart shows that the AFRM stock price found a strong support at $8.64, the lowest level this year. The stock has formed a double-bottom pattern, which is a bullish signal. It has formed above the 25-day and 50-day moving averages (MA). The two averages have made a bullish crossover.
Therefore, while Affirm share price has some risks, I suspect that the shares will continue rising as long as it is above the double-bottom pattern at $8.64. The bullish view will be confirmed if it moves above the neckline at $22.93.
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