Affirm's earnings beat sparks 32% surge: A strategic buy before re-rating?

Affirm Holdings Inc. (NASDAQ: AFRM) has seen its stock surge by 32% following the release of an impressive earnings report that surpassed expectations on both revenue and earnings.

This unexpected performance has caught the attention of investors, making Affirm a potential buying opportunity ahead of a possible re-rating.

With the company edging closer to profitability, this post-earnings momentum could be the start of a significant bull rally.

In its latest earnings report, Affirm posted revenue of $659 million, significantly beating analyst expectations of $604 million.

The company reported a loss per share of 14 cents, far better than the anticipated loss of 51 cents per share.

This marks a 48% year-over-year revenue growth, driven by an increase in active merchants, which now exceed 300,000, and active consumers, which have grown by 19% year-over-year to 18.6 million.

The primary reason for the stock's sharp rise is the company’s proximity to profitability, which has exceeded many analysts' expectations.

Affirm’s CEO, Max Levchin, has stated that the company could achieve GAAP operating profitability by the fourth fiscal quarter of 2025, further fueling investor optimism.

Affirm’s revenue projection for the upcoming quarter ranges between $640 million and $670 million, an increase from the previously estimated $625 million.

This upward revision is largely attributed to Affirm’s strategic partnership with Apple, which has opened new avenues for growth.

Apple’s exit from BNPL market and Affirm’s strategic gain

Earlier this year, Apple made headlines by exiting the Buy Now, Pay Later (BNPL) market.

This move was initially seen as a growth opportunity for other players in the BNPL space, including Affirm.

However, the market was pleasantly surprised when Apple chose to partner with Affirm for its BNPL services.

This partnership has positioned Affirm as a key player in the BNPL industry and has bolstered its prospects significantly.

Despite this positive development, Affirm’s stock performance throughout the year had been subdued due to inflationary pressures and economic uncertainty.

In a challenging environment where consumers were cautious about spending, the BNPL market faced headwinds.

However, the landscape appears to be shifting.

Affirm’s CEO now believes that consumers are returning to the market, and shopping activities are picking up.

More importantly, Affirm’s BNPL model offers consumers predictability in their financial planning, which is increasingly valued in uncertain times.

Unlike traditional credit cards, Affirm’s BNPL services do not charge interest, allowing consumers to manage their budgets more effectively.

According to a recent survey conducted by Affirm, over half of US consumers have either used BNPL services or would consider using them if available.

Nearly 50% of respondents indicated that 0% APR offerings would influence their purchasing decisions.

For Affirm, this suggests that consumers are willing to spend more when they know they are saving on interest payments.

Additionally, 70% of survey participants stated that they would feel more confident managing holiday expenses with a BNPL option.

A potential bull rally?

While the full impact of Affirm’s partnership with Apple may take time to materialize in its financial results, the early effects are expected to be reflected in the company’s performance this quarter.

Much of this positive outlook is already priced into the stock, but once Affirm achieves profitability, analysts may begin to re-rate the company, potentially triggering a significant bull rally.

For investors, the current moment presents a prime opportunity to enter the market before this anticipated upward momentum gains full traction.