Affirm Holdings Faces Funding Pressures: 4 Analysts On Better-Than-Expected Earnings

Shares of Affirm Holdings Inc AFRM dipped during the premarket on Wednesday, despite the company reporting better-than-expected quarterly earnings.

The report came amid an exciting earnings season. Here are some key analyst takeaways from the earnings release.

• Truist Securities analyst Andrew Jeffrey reiterated a Buy rating and price target of $17.
• Stephens analyst Vincent Caintic maintained an Underweight rating and price target of $6.
• RBC Capital Markets analyst Daniel Perlin reaffirmed a Sector Perform rating and price target of $17.
• Wedbush analyst David Chiaverini maintained an Underperform rating, while reducing the price target from $10 to $9.

Check out other analyst stock ratings.

Truist Securities

Affirm’s results beat guidance on all key parameters, signaling “a return to more consistent 3%+ rev less tx cost (RLTC) performance, a key proxy for unit economics,” Jeffrey said.

“Although we think underwriting is tight, we anticipate 2HF23 as the bottom for GMV and organic rev growth as Affirm performs well at enterprise customers, signs new deals, benefits from ample liquidity and sees contribution from Debit+,” the analyst added.

Stephens

“Revenue Less Transaction Costs was 16% better than consensus, but this was due to allowance for loan losses declining to 4.7% from 5% last quarter, which we consider low-quality,” Caintic wrote in a note.

“Funding costs were 17% higher than consensus, and we don't think the higher funding cost trends are over and expect more spread compression to come,” the analyst said.

A "shift toward more warehouse funding" will become more expensive as banks broadly pull back on credit lines, Caintic added.

RBC Capital Markets

Affirm’s quarterly results were better than expected and its guidance is “generally solid,” although seasonality could “weigh on credit-related metrics next quarter,” Perlin said.

“When looking at consumer credit, the company stated that the F3Q23 30+ days delinquency rate (excluding Split Pay and Peloton) was 2.5%, an improvement q/q; however, management expects the delinquency rate to increase in F4Q23 on seasonal factors,” the analyst wrote.

Wedbush

Affirm reported a revenue beat on higher-than-expected interest income, “and revenue less transaction costs came in better than expected, driven mostly by lower-than-expected net charge-offs,” Chiaverini mentioned.

“Overall, credit performance continues to be strong, as evidenced by a sequential decline in delinquency rates (ex-Peloton),” the analyst wrote. “However, we continue to have concerns regarding the impact of increasingly higher funding costs on Affirm's unit economics."

AFRM Price Action: Shares of Affirm Holdings fell by 1.14% to $12.30 in premarket trading on Wednesday.