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On Thursday, Needham maintained a Hold rating on shares of Affirm Holdings Inc. (NASDAQ: NASDAQ:AFRM), following the company's announcement of impressive quarterly results that surpassed expectations.
Affirm also provided an optimistic outlook, indicating plans to achieve GAAP profitability by the fourth quarter of fiscal year 2025. Despite the positive performance, the firm noted a slight increase in delinquencies over 30 days both quarter-over-quarter and year-over-year.
Affirm's ability to manage modest reserve builds and higher credit costs with savings in selling, general, and administrative (SG&A) expenses, alongside other transaction cost leverage, was highlighted as a key strength. Needham acknowledged the company's commendable performance in delivering a robust quarter. Following the report, estimates for Affirm's financials were revised upward across the board.
The company's after-hours stock rally of 15% led to expectations of the shares opening at a forward non-GAAP price-to-earnings (P/E) ratio of approximately 23 times for fiscal year 2026. This valuation places Affirm at a premium compared to its industry peers. Based on this assessment, Needham expressed a neutral view on the stock's risk-reward balance, opting to maintain the Hold rating.
The analyst's remarks concluded with recognition of Affirm's solid quarter, yet the decision to uphold the Hold rating was influenced by the stock's anticipated premium valuation relative to its peers. Needham's stance suggests that while Affirm's financial outlook is positive, the current stock price may fully reflect this optimism.
In other recent news, Affirm Holdings Inc. has delivered strong financial results in the fourth quarter of the fiscal year 2024, exceeding market expectations. The fintech company's quarterly results surpassed the required loan to cost (RLTC) by 22%, indicating a robust performance.
Affirm's forward-looking guidance was also notably stronger than anticipated, suggesting potential for further financial outperformance. The company has committed to achieving sustained GAAP profitability by the fourth quarter of 2025, supported by another year of significant operating leverage.
Affirm's strategy includes maintaining a 30% growth in Gross Merchandise Volume (GMV) while keeping operating expenses growth moderate. This approach is anticipated to drive further RLTC and gross profit to the bottom line, supporting an increase in GAAP Earnings Per Share (EPS) over time. Goldman Sachs maintains a positive outlook on Affirm, expecting the company's strategy to translate into tangible earnings growth.
In addition to its financial performance, Affirm announced leadership changes, with CFO Michael Linford taking on the role of Chief Operating Officer and Rob O'Hare set to become the new CFO. The company's guidance for fiscal 2025 indicates a strategy to surpass conservative credit outcome targets.
Affirm is also focusing on driving growth by increasing annual spend per Affirm card and active cards, leveraging its machine learning capabilities for underwriting, and maintaining a strong sales team for merchant acquisition.
InvestingPro Insights
As Affirm Holdings Inc. (NASDAQ: AFRM) garners attention with its optimistic financial outlook and post-earnings stock rally, InvestingPro data provides a deeper dive into the company's market performance and fundamental metrics. With a market capitalization of $9.76 billion, Affirm's growth trajectory is evident through a substantial revenue growth of 40.05% over the last twelve months as of Q3 2024, outpacing many competitors in the financial technology sector.
InvestingPro Tips highlight that despite the volatility in stock price movements, Affirm has demonstrated a strong return over the last month, with a 17.66% increase. This short-term performance is complemented by a significant one-year price total return of 64.91%, showcasing the company's ability to generate investor interest and confidence. Additionally, the company's liquid assets surpassing short term obligations suggests a solid liquidity position, which may reassure investors about the company's financial health in the near term.
The company's forward-looking approach is also reflected in the InvestingPro Fair Value estimate of $33.7, which is slightly below the analyst target of $38.5, indicating potential room for growth. However, it's important to note that Affirm is not expected to be profitable this year, and the company does not pay a dividend, factors that might be considered by investors with different risk appetites or income preferences.
For those seeking more comprehensive analysis and additional insights, InvestingPro offers a suite of tips and metrics on Affirm Holdings Inc., including those not covered here. To explore further, you can find a total of 7 additional InvestingPro Tips at: https://www.investing.com/pro/AFRM.
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