Affirm (AFRM) Earnings Preview
Affirm (AFRM) will report earnings on 9/9 after the close with the Street expecting ($0.29) EPS and $226.5M in Revenues (+60%) to close 2021 with Q1/FY22 seen at ($0.21)/$234M and ($0.77)/$1.17B. AFRM shares have closed lower its first two earnings report with an average max move of 15%. AFRM operates as a provider of point-of-sale loans – sometimes called ‘Buy Now, Pay Later’ — which allows consumers to finance purchases and pay in installments over time without late fees or compounding interest. The company was founded by PayPal co-founder Max Levchin and has quickly grown into one of the leading BNPL firms in the US. They have 6.2M customers, 6500 merchants, and did nearly $11B in GMV since 2017. Their model is sticky with 64% repeat customers. AFRM has formed several partnerships with leading retailers like Purple (PRPL), Casper (CSPR), Mirror (LULU), Adidas, and more. Their biggest client is Peloton (PTON) which contributed around 30% of their overall revenue in 2020. ‘Buy Now, Pay Later’ has surged in popularity over the last twelve months. S&P Global noted last year that they expect the market to grow 400% by 2025 with major banks being displaced by easier, tech-driven firms like AFRM, AfterPay, QuadPay and Klarna. A BAML survey in December predicted that tech-driven apps like AFRM were poised to grow 10-15X by 2025 and potentially process up to $1T in transactions. They think store card issuers like ADS and SYF are most at-risk and categories like electronics and home furnishings are big areas where AFRM could grow. Square recently bought Afterpay and there has been a surge of consolidation moves in the space while AFRM recently soared after partnering with Amazon (AMZN). AFRM currently has a market cap of $26.25B and trades 21X FY22 EV/Sales with revenues seen rising 40% in 2022 and 32% in 2023 after jumping 80% and 75% the last two fiscal years. Analysts have an average target of $90 and short interest is around 9% of the float. RBC raised its target to $124 on 8/30 citing its partnerships with Amazon and Shopify key to the bull narrative. MSCO raised its target to $120 from $73 seeing 150M Amazon Prime members accelerating AFRM growth with potential to grow to 18M active customers by the end of 2023. CSFB noted the AMZN deal can bolster AFRM’s network effects and add incremental 35-40% to AFRM’s contribution profit. Hedge Fund ownership jumped nearly 12% last quarter with Durable Capital a top holder adding to its position and Abdiel taking a new position. On the chart AFRM gapped out of a long basing pattern and now flagging under $100.50 resistance and now firmly above $80.50, VWAP from the IPO. Shares are currently trapped between a 50% and 61.8% retracement level of the lifetime range at $90.25 and $99.50 respectively with $111 the next retracement level. AFRM options are pricing in a 12% move on earnings with 30-day IV Skew sharply inverted (bullish) at -7.7 compared to the -4.4 52-week average. AFRM has seen a surge in bullish flows since the Amazon news with September $100, $110 and $115 calls bought over 10,000X each in size lots. With the momentum and focus likely on future results, not the past quarter, due to the new partnership, the skew makes upside call spreads a favorable trade on a risk/reward basis, the September $100/$110 call spread for $2.20 seems underpriced.