Affirm (AFRM) Stock Falls 4.4% Despite Beating Q2 Earnings Estimates

TLDR

• Affirm reported Q2 earnings of $0.37 per share, beating estimates of $0.28 by $0.09, with revenue of $1.12 billion topping the $1.06 billion consensus.
• Shares dropped 4.4% to $59.42 despite the earnings beat after management provided mixed Q3 revenue guidance and omitted forward EPS projections.
• CEO Max Levchin sold 666,666 shares worth approximately $53.7 million in early January at $80.62 per share.
• The stock trades below both its 50-day and 200-day moving averages with a high P/E ratio of 88.69, prompting profit-taking despite strong results.
• Analysts maintain a “Moderate Buy” rating with an average price target of $89.16, with recent upgrades from Morgan Stanley to Overweight and Needham to Buy.

Affirm posted better-than-expected results for its second quarter on Thursday but couldn’t avoid a sell-off. The buy now, pay later company reported earnings per share of $0.37, crushing analyst estimates of $0.28 by $0.09.

Revenue came in at $1.12 billion for the quarter. That beat the Wall Street consensus of $1.06 billion. The company delivered strong performance on both the top and bottom lines.

Affirm Holdings, Inc., AFRM

Despite the beat, shares tumbled 4.4% to close at $59.42. Trading volume spiked to 12.9 million shares, more than double the average daily volume of 6.1 million. Investors weren’t impressed with what came next.

The company provided mixed guidance for the quarters ahead. Management projected Q3 revenue between $970 million and $1 billion, slightly below the analyst consensus of $978.3 million. Full-year revenue guidance landed at $4.09 billion to $4.15 billion, roughly in line with expectations.

Missing Guidance Spooks Investors

The bigger issue was what Affirm didn’t say. The company left out forward EPS guidance entirely, leaving those fields blank in its earnings update. That created uncertainty about near-term profitability despite the impressive quarterly beat.

The market hates uncertainty. Without clear earnings projections, investors had no choice but to guess at future margins and profitability.

Affirm’s revenue growth stemmed from higher gross merchandise volume. That’s a healthy sign for the company’s core business of buy now, pay later services and merchant partnerships. But technical factors worked against the stock.

The shares currently trade below both their 50-day moving average of $72.00 and 200-day moving average of $74.34. The stock carries a P/E ratio of 88.69, pricing in substantial future growth. Even strong quarterly results can trigger profit-taking when valuations run hot.

Insider Activity Raises Questions

CEO Max Levchin made a large sale in early January. He offloaded 666,666 shares at an average price of $80.62 per share. The transaction totaled roughly $53.7 million.

CFO Robert O’Hare also sold shares around the same time. He dumped 36,401 shares at $80.00 each for about $2.9 million. That sale represented a 96.38% decrease in his position.

Over the past three months, insiders sold approximately 711,256 shares worth $57.2 million. These sales happened before the earnings report when the stock traded higher. Insiders still own 11.01% of the company.

The timing of these sales, just weeks before earnings, caught some attention. Insiders can have various reasons for selling, including tax planning and diversification. But large sales before a stock drop always draw scrutiny.

Analysts maintained their generally positive stance. Morgan Stanley upgraded Affirm to Overweight, providing a vote of confidence. Needham upgraded from Hold to Buy with a $100 price target. Cantor Fitzgerald slapped a Strong Buy rating on the shares.

The consensus rating sits at Moderate Buy with an average price target of $89.16. That implies roughly 50% upside from current levels. Three analysts rate it Strong Buy, nineteen say Buy, and eight recommend Hold.

Institutional investors own 69.29% of the stock. Several funds adjusted their positions during the third quarter, with new positions and increased stakes appearing in SEC filings.

Affirm operates with a debt-to-equity ratio of 2.40 and maintains quick and current ratios of 12.80. The company posted a net margin of 6.74% and return on equity of 7.75%. The market cap stands at $19.61 billion.

The stock has traded between $30.90 and $100.00 over the past year. It’s down 19.29% over the last three months and off 3.77% over the past year.

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