Affirm: Buying Growth

 

  • Affirm announced an exclusive deal with Amazon lasting just 13 months at the cost of 22 million shares.
  • The BNPL provider forecasts massive 13% operating margin losses this year before factoring in the $2+ billion in-effect marketing cost for the Amazon deal.
  • The stock now trades at an absurd $53 billion market cap which is ~90x FY22 net revenues.
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Affirm (AFRM) is surging again following news of the BNPL deal with Amazon (AMZN) expanding to an exclusive deal. The deal comes at a very high cost to shareholders over looked by the market. My investment thesis remains Bearish on the stock, especially after an irrational rally on the deal with the leading e-commerce retailer.

Read the full article on Seeking Alpha. 

Disclosure: No position mentioned. Please review the disclaimer page for more details. 

Update - Dec. 15, 2021

The BNPL product continues to unravel as the market realizes this is just another credit scheme.

  • The Consumer Financial Protection Bureau issues a series of orders to five "Buy Now, Pay Later" companies, including Affirm Holdings (NASDAQ:AFRM), Afterpay (OTCPK:AFTPF) (OTCPK:AFTPY), Klarna (KLAR), PayPal (NASDAQ:PYPL) and Zip, to collect more information on the risks and benefits of BNPL services, the agency says in a release.
  • Shares of (AFRM -9.6%) drop to five-session lows, trading below its 200-day simple moving average at $104.81 per share. The rest of the BNPL group trades somewhat higher, though (PYPL -0.5%) is off a bit so far on Thursday.
  • As the BNPL market gains more traction, especially over the past year, the agency is concerned about accumulating debt, regulatory arbitrage and data harvesting.
  • "Buy now pay later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately too," said CFPB Director Rohit Chopra.


Update - Dec. 14, 2021

So the base case is still 26x sales... gotta be kidding.

-Overall, delinquency is worsening at major industry participants, he writes, with delinquent receivables nearly quadrupling at Afterpay (OTCPK:AFTPY) vs. recent levels and net charge-offs rising by ~1,000 basis points as a percentage of gross receivables at Sezzle, which isn't publicly traded.
-Affirm Holdings (NASDAQ:AFRM) stock dips 4.2% after Dolev reduces its price target to $140 from $180. That's based on reducing his base case multiple to 26x from 32x. "The multiple reduction better reflects potential market risks Affirm (AFRM) faces despite having significant GMV upside potential from the Amazon (NASDAQ:AMZN) opportunity, in our view," Dolev said.


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