Affirm Holdings ( NASDAQ: AFRM ) stock dropped 4.1% in Friday premarket trading after Morgan Stanley analyst James Faucette downgraded the Buy Now, Pay Later financing firm to Equalweight from Overweight.
"Affirm's ( AFRM ) product ambitions are too large given narrow incremental benefits, slow consumer behavior change, development cost limitations, pricing missteps, and potential for increasing customer acquisition friction, all with a small time window for rapid customer base growth," Faucette wrote in a note to clients.
He pointed out that the challenges to customers embracing its products rise because the company's current offering, BNPL, and products it's developing (e.g., debit+) have "substantially different features than what has been broadly adopted by the market (i.e., revolving credit)."
Faucette said a more efficient strategy would be to use BNPL to attract customers initially then to shift the best customers into traditional credit products.
Morgan Stanley's price target for Affirm ( AFRM ) is slashed to $15 from $46, based on an updated EV/sales multiple of ~4x vs. 5x prior.
The Equalweight rating agrees with the average Wall Street rating of Hold and contrasts with the SA Quant rating of Strong Sell and the average SA Author's rating of Buy.
See why SA contributor Michael Wiggins De Oliveira has lost confidence in the company's prospects.
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Affirm Holdings cut to Equalweight at Morgan Stanley on its overly large ambitions