Affirm Holdings (NASDAQ: AFRM) stock was down 15%. AFRM stock suffered from the European warning of declining transaction revenues for consumer credit. Worldline, the Paris based payments processor, gave warnings that transaction volumes were likely to fall. Worldline’s shares then dropped by 60%. The ripply then went through PayPal, Block and so on, hitting Affirm. It’s perhaps slightly odd that an American firm, in a different sector of the business, should be hit by a European warning. But what’s being worried about is a general macroeconomic change right across the market.
As to what’s done at Affirm: ““Affirm Holdings, Inc. operates a platform for digital and mobile-first commerce in the United States, Canada, and internationally. The company’s platform includes point-of-sale payment solution for consumers, merchant commerce solutions, and a consumer-focused app. Its commerce platform, agreements with originating banks, and capital markets partners enables consumers to pay for a purchase over time with terms ranging up to 60 months. The company has active merchants covering small businesses, large enterprises, direct-to-consumer brands, brick-and-mortar stores, and companies with an omni-channel presence.” We can also call this a “buy now pay later” firm. Or even a supplier of consumer credit.”
Affirm Holdings stock price from Google Finance
Affirm is in a different section of the finance business. Worldline is largely a processor of merchant payments - as is Block. So the business depends entirely on the volume of payments going through the network. If consumer purchases are falling - a good sign of an imminent recession - then yes, that will impact the fiscal performance of the firm.
Assirm is doing something different, it is actually financing consumer purchases. So, it’s possible that even in a falling market more consumers will wish to finance their purchases. Affirm can - could - move against the more general market that is. Of course, it also might not.
For as we’ve said before here’s the real issue with trying to value Affirm Holdings: “But this still leaves us with two questions. The first is, well, will earnings ever grow to cover all costs so that profit is made? The other is, well, is this some new whizzy tech company? Or just a different way of doing that same old thing, consumer credit? So, which valuation should apply? Whizzy tech or boring old consumer credit? The answer is likely to come in the next recession when we see what the failure rate of the loans is going to be. So, until that test we’ve uncertainty.”
If that recession in consumer spending is coming then we’re going to get that test.