AFRM - Affirm: Significant Upside Potential Growing Adoption With Expanding Merchants And Profitability

2024-05-23 08:47:40 ET

Summary

• Affirm's Q3 earnings showed revenue growth of 51% YoY and earnings turning positive with a margin of 14%, driven by operational efficiencies.
• During Q3, the company saw its active cardholders cross 1M, up 30% YoY, while active merchants grew 19% YoY as it drives innovation in its core products to improve conversion rates.
• The company set a target to reach $50B in GMV in the medium term by driving adoption of its Affirm Card, helping merchants win at checkout and expanding internationally.
• Although rising credit card delinquencies can spill over to the BNPL market, coupled with regulation risks, I believe the downside is likely priced in, making it a “buy”.

Introduction & Investment Thesis

I initiated a “buy” rating on Affirm ( AFRM ) on April 6th, where my investment thesis was predicated on my belief that the stock was attractively priced from a risk-reward perspective, given the management’s $50B Gross Merchandise Value (GMV) target in the medium term and its progress in scaling the adoption of its Affirm Card while onboarding new merchants on the platform through continuous product innovation and financial discipline....

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