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On Thursday, Needham reaffirmed its Hold rating on Affirm Holdings Inc. (NASDAQ:AFRM), a $17.7 billion market cap fintech company that has seen its stock surge over 90% in the past six months. According to InvestingPro data, the company's stock has shown significant volatility, with additional insights available through InvestingPro's comprehensive analysis tools. The research firm is analyzing whether Affirm would benefit from either acquiring a bank or applying for an Industrial Loan Company (ILC) charter. Needham's analysis is driven by the interest of investors in strategies that could enhance Affirm's funding quality and reduce costs.
Needham suggests that if Affirm were to acquire a banking license, it could nearly double its GAAP earnings per share (EPS) in the fiscal year 2027 and beyond. The company currently reports a negative EPS of $1.42 and isn't expected to be profitable this year, according to analyst forecasts. While pursuing a bank charter would involve regulatory approvals and execution risks, Affirm maintains strong liquidity with a current ratio of 17.58. These factors contribute to the uncertainty regarding this potential move as a catalyst for the company's stock performance at present.
Affirm's current valuation is approximately 79 times Needham's estimate for the company's GAAP EPS for FY27. This valuation drops to around 40 times when considering a pro forma EPS that assumes Affirm has a bank charter. Despite the potential for a banking license to significantly impact Affirm's earnings, Needham views the risk-reward balance as neutral, which justifies the decision to maintain a Hold rating on the stock.
The analysis by Needham takes into account the complex nature of regulatory approval processes and the inherent risks associated with such a strategic move for Affirm. The firm emphasizes that while the path to obtaining a banking license appears likely for Affirm, the timing and successful execution of this strategy are not guaranteed and pose a risk for investors.
In conclusion, Needham's stance remains unchanged as they continue to monitor Affirm's strategic decisions and the implications of a potential banking license on the company's financial performance. Based on InvestingPro's analysis, the company maintains a "Fair" overall financial health score, with particularly strong growth metrics. For deeper insights into Affirm's valuation and growth prospects, investors can access the detailed Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Affirm Holdings has seen significant developments in its financial landscape. The company's stock target was raised by RBC Capital Markets, reflecting a more optimistic view of Affirm's financial prospects. This was backed by a strong revenue growth of 46.55% over the last year. In addition, Affirm issued $920 million in convertible notes, creating a direct financial obligation.
On the partnership front, Affirm expanded its alliance with WooCommerce, integrating as a default payment option. This move resulted in a 45% increase in WooCommerce merchants utilizing Affirm's services. The company also broadened its relationship with Adyen (AS:ADYEN), leading to a sevenfold increase in average annual volume with over $125 million processed in payments.
Analyst firms including JMP Securities, Deutsche Bank (ETR:DBKGn), Mizuho (NYSE:MFG) Securities, and BTIG showed increased interest in Affirm, upgrading the company's stock status and revising their price targets upwards. Lastly, Affirm secured a substantial capital partnership with investment firm Sixth Street, providing up to $4 billion for its loans, which could potentially enable Affirm to issue over $20 billion in loans in the coming years. These are all recent developments, highlighting Affirm's strategic growth and strong market position.
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