On Friday, BofA Securities updated its outlook on Affirm Holdings Inc. (NASDAQ: NASDAQ:AFRM) stock, raising the price target to $74 from the previous $50 while maintaining a Buy rating. The adjustment comes as Affirm demonstrates robust growth and performance across several key areas.
Affirm, a company specializing in buy now, pay later services, has shown significant growth in gross merchandise value (GMV), outperforming competitors such as Afterpay and Klarna. This increase in GMV indicates a strong uptake of Affirm's services among consumers.
Additionally, the company's Residual Loan to Cost (RLTC) performance is reported to be at the high end of its target range of 3-4%. This metric assesses the profitability of loan portfolios, suggesting that Affirm's loan products are performing well.
The trajectory for operating profitability is also looking positive, with projections indicating a potential for positive GAAP operating income by the second quarter of 2025. This forward-looking statement suggests that Affirm is on a path to sustainable profitability.
Credit metrics have also been highlighted as a strong point for Affirm, with the company benefitting from robust underwriting tools. Such tools are crucial for assessing credit risk and ensuring the company's loan portfolio remains healthy.
Lastly, Affirm's funding situation appears to be secure, with strong demand from partners and the benefit of lower rates. This financial stability supports the company's operations and growth strategies.
The firm notes that Affirm's enviable roster of merchants, which includes names like Amazon (NASDAQ:AMZN), Shopify (NYSE:SHOP), and Walmart (NYSE:WMT), along with its diversified loan products, continues to differentiate the company in the market. Given these positive dynamics, the firm anticipates that there could be further upside potential to near-term estimates for Affirm.
In other recent news, Affirm Holdings has been making significant strides in the financial sector. The company recently reported strong first-quarter results, with the Chief Operating Officer, Michael Linford, highlighting improvements in revenue as a percentage of Gross Merchandise Volume (GMV). Adjusted operating income margins are projected to be between 21% and 23%, with Real Lender Total (EPA:TTEF) Cost (RLTC) margins forecasted around 3.8% for the second quarter.
Affirm has also been the subject of positive attention from Mizuho (NYSE:MFG) Securities, which increased its price target on the company's stock to $69 from the previous $65, while maintaining an Outperform rating. This adjustment follows the company's recent earnings announcement and reflects confidence in Affirm's strategic moves, such as scaling operations in the UK market.
In addition to its financial performance, Affirm is preparing for a UK market launch, aiming to meet the demand for long-term payment products. The CEO, Max Levchin, expressed confidence in the firm's strategic initiatives and competitive pricing strategy.
Furthermore, Affirm has partnered with Visa (NYSE:V) to introduce a new payment feature in the United States called "Flexible Credential." This feature allows users to access multiple accounts and funding sources with one card, a service that 51% of card users showed interest in, according to a Visa study. These developments are part of recent trends that are shaping the financial technology landscape.
InvestingPro Insights
Affirm Holdings Inc. (NASDAQ: AFRM) has been experiencing significant momentum in the market, aligning with BofA Securities' optimistic outlook. According to InvestingPro data, the company has shown a remarkable 157.1% price total return over the past year, with a strong 49.44% return in just the last month. This performance has brought the stock to trade near its 52-week high, with the current price at 98.69% of that peak.
InvestingPro Tips highlight that Affirm's stock generally trades with high price volatility, which could be attractive for investors seeking growth opportunities in the fintech sector. The company's liquid assets exceeding short-term obligations is a positive sign, supporting BofA's view on Affirm's secure funding situation.
However, it's important to note that despite the strong growth in GMV and positive projections for future profitability, Affirm is not currently profitable. An InvestingPro Tip indicates that analysts do not anticipate the company to be profitable this year, which aligns with the article's mention of potential positive GAAP operating income by Q2 2025.
For investors looking for a more comprehensive analysis, InvestingPro offers 12 additional tips for Affirm Holdings Inc., providing a deeper insight into the company's financial health and market position.
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