Shares of Affirm Holdings Inc. were tumbling in midday trading Tuesday after a fellow financial-technology company delivered what one analyst saw as an ominous sign for fintech businesses dependent on capital markets.
Upstart Holdings Inc.
a fintech company using artificial intelligence in lending decisions, cut its full-year forecast late Monday, acknowledging that the current macroeconomic climate could limit loan volumes and disclosing that it was now keeping more loans on its balance sheet in a “market-clearing” move.
“We think the read-through is negative for capital-markets reliant fintechs,” Stephens analyst Vincent Caintic wrote in a Tuesday downgrade of Affirm’s stock
He cut his rating on the buy-now pay-later company’s shares to underweight from equal weight and reduced his price target to $17 from $51.
Affirm shares were off 15% in Tuesday trading, while Upstart shares were diving 60%.
“Upstart’s earnings print not only implied higher funding costs but also inability to access the capital markets, something which we’re also worried about for AFRM,” Caintic wrote. “This is in addition to our expectations for GMV [gross merchandise volume] guide-down due to weak industry e-comm sales.”
Caintic now has a “full-lender” multiple of 10 times 2023 estimates for “normalized” earnings per share on Affirm’s stock. He made a similar move with shares of Upstart, which he downgraded to underweight as well.
“Between the two, we prefer AFRM due to its shorter-duration loans with consumers, and a likely higher payment rate as consumers prioritize Affirm’s payment mechanism over an unsecured loan by Upstart,” he wrote.
Affirm is due to post its own quarterly results after the May 12 closing bell.
Though Caintic said he “would avoid AFRM into its 1Q22 earnings print,” he framed his view as part of a more general call. “We are also broadly negative on capital-markets reliant fintechs, especially from those who appear willing to time the market like both Affirm and Upstart,” Caintic added.
Morgan Stanley’s James Faucette remains more upbeat on Affirm’s stock. He maintained an overweight rating and $80 price target in a Tuesday earnings preview.
Affirm updated its outlook in an optimistic way in mid-March, but investors have been increasingly concerned about the state of e-commerce growth in the wake of recent earnings reports from PayPal Holdings Inc.
and Amazon.com Inc.
according to Faucette.
Affirm’s stock has plummeted 54.0% over the past month, while the S&P 500 index
has declined 11.4%.
“As a result, we think expectations for AFRM’s outlook have come down meaningfully,” Faucette wrote. His analysis of data and trends indicates that “the company can deliver on 1Q GMV expectations.”
However, investors will likely be more focused on the company’s outlook than its recent results, he noted.
“Despite slowing e-commerce, discretionary credit spend was strong in 1Q, suggesting demand for AFRM’s installment loans may have persisted,” Faucette wrote. “Still, macro uncertainty may leave investors hesitant to extrapolate any upside in AFRM’s 1Q to future quarters, especially since forecasting GMV’s impact on the P&L is difficult because of AFRM’s changing volume mix and revenue timing.”