Why Affirm Holdings jumped 10.6% in March

What happened

Affirm Assets (NASDAQ: AFRM) rebounded in March, gaining 10.6% for the month, according to S&P Global Market Intelligence. Affirm outperformed the S&P 500, up 3.6% in March, but remains in the red for the year. Currently, the stock is trading at around $47 per share, down 53% year-to-date (YTD).

Image source: Getty Images.

So what

Affirm Holdings is a buy-it-now, pay-later (BNPL) company. It allows consumers to pay for their goods in installments, whether online or in person. It is an alternative to using credit cards. Using AI, the Affirm app instantly assesses your credit at the point of sale, then calculates your deposits on the spot. Often no interest is added to the price, but in cases where interest is applied, it is determined in advance and included in the installment payments. Affirm is not a bank, so it relies on banking partners for loans. Most revenue comes from fees paid by merchants for each use.

the fintech went public in January of last year and took off like a rocket, hitting nearly $170 per share in November. Since then, it has collapsed by around 72%, including 52% since the start of the year. It had been way overpriced and got caught up in the massive sale that started in November.

While revenue and user growth have been rapid, concerns about inflation, the economy, and BNPL users in general falling behind on their payments have emerged. As To assert does not charge late fees, this could be a problem. In its second fiscal quarter (ended Dec. 31), Affirm increased its provision for credit losses to $52 million from $12 million a year ago. In addition, high expenses offset the revenue figures, and Affirm net loss reached $159 million in the quarter, compared to $28 million a year ago.

Affirm fell to a low of $26 per share on March 14, but has since rebounded to its current level of $47 per share.

Now what

The rebound can be directly linked to a business update the company released on March 14, in which it provided third-quarter and full-year outlooks. Gross merchandise volume and revenue projections were updated to the upper end of the range previously set just a month ago, while revenue less transaction costs are expected to be higher for the quarter and the full year.

Additionally, operating expenses are expected to be lower than expected, making the adjusted operating loss for the quarter and full year lower than expected. If this materializes, it will be a good sign that Affirm is moving in the right direction, but there is a lot of uncertainty in the markets and the economy and there are many competitors in the space. Be careful.

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David Kovalesky has no position in the stocks mentioned. The Motley Fool owns and recommends Affirm Holdings, Inc. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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