Time to buy the stock?

An increase in the number of transactions conducted through the Affirm platform has likely led to an uptick in active merchants and consumers. The Zacks Consensus Estimate for Active Consumers suggests year-over-year growth of 13.5%.

Increasing usage of Affirm’s virtual cards is expected to boost the card network’s revenue. Consensus card network revenue is $42.9 million, up 28.2% from the prior-year quarter.

Meanwhile, interest income is likely to have received a boost from the company’s pricing initiatives and the increase in loans held for investment purposes. The Zacks Consensus Estimate for interest income is $348 million, up 32.5% year-over-year. A growing number of loans sold may have contributed to servicing income.

Consensus is for services revenue of $29.3 million, up 45.4% from the prior-year quarter.

However, higher transaction costs are likely to be reflected in the quarterly results. The company expects transaction costs to be between $375 million and $390 million, still higher than last year’s level of $284 million. In addition, operating expenses are likely to have increased due to higher processing, service and financing costs as well as an increase in provisions for loan losses. This in turn is likely to have put pressure on margins.

Shares of Affirm have lost 11.1% year to date versus the industry’s growth of 13.7%. It also underperformed the broader Zacks Business Services sector’s 14.3% rise and the S&P 500 Index’s 20.1% rise in the period. Compared to AFRM, two of its industry peers, Mastercard Incorporated MA and Visa Inc. V has gained 18.6% and 12.1%, respectively, over the same period.

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Now let’s look at the value Affirm offers investors at current levels.

The company is inexpensive compared to the industry average. Currently, AFRM trades at 4.19 times 12-month forward sales, below the industry average of 6.89.

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Affirm’s robust revenue growth is driven by a growing merchant network, increased card acceptance and strong GMV, which is expected to exceed $33.5 billion in fiscal 2025. Partnerships with brands like Apple Pay, Hotels.com and Peloton have expanded the company’s reach across industries. Product innovations including Pay in 2 and Pay in 30 diversify payment options, while international expansion plans into the UK aim to drive growth.

However, rising financing costs, loan loss provisions, and processing and service costs will keep margins under pressure. High levels of debt also continue to be a concern.

Although Affirm faces challenges such as increased operating costs, a growing active dealer network and growing GMV currently make it an attractive investment option. AFRM’s relatively lower valuation compared to the industry further increases its buying appeal.

Although the company’s pricing performance has been under pressure year to date, improving interest income and continued spending in the travel and ticketing categories should provide some respite to investors. Therefore, with further expected earnings growth on the horizon, it remains a solid long-term investment choice.

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