Shares of Affirm Holdings Inc. took a hit on Thursday after Piper Sandler analyst Kevin Barker advised investors to sell. Barker cited higher interest rates and increased competition as factors that would negatively impact the company’s revenue and margins.
Barker downgraded his rating on Affirm’s stock from neutral to underweight and set a stock price target of $11, implying a 29% decrease from the previous day’s closing price. In a note to clients, Barker explained that the company’s operating margins would be pressured by persistently higher rates, leading them to hold more loans on their balance sheet. He also predicted that tighter underwriting standards, increased pricing, and the competitive landscape would cause a slowdown in revenue growth over the next year.
In premarket trading, Affirm’s stock fell approximately 5.5% to a six-week low, putting it on track to open nearly 23% below its four-month closing high. Barker pointed out that Affirm generated $32.8 million, around 9% of its fiscal third-quarter revenue, from gains on loans sales, a decrease from the previous quarters. Simultaneously, net loans held for investment declined from the second quarter but remained higher than the first quarter.
Barker attributed the increase in loans held on the balance sheet to higher interest rates and wider credit spreads, which caused prices in the whole loan market to decrease. He anticipated that Affirm would face additional pressure from lower gain-on-sale revenue and higher funding costs due to persistently high rates.
Despite Affirm’s stock experiencing a 59.5% year-to-date increase, compared to the S&P 500 index’s 15.8% gain, Barker’s analysis and downgrade have raised concerns among investors.
In conclusion, Affirm’s stock price plummeted as Piper Sandler analyst Kevin Barker recommended selling shares due to expected margin contraction and a slowdown in revenue growth caused by higher rates and increased competition. The company’s decision to hold more loans on its balance sheet also contributed to the negative outlook. This downgrade comes after a period of strong performance for Affirm, leading investors to reassess their positions in the stock.
