Affirm (AFRM) Stock: Why Shares Dropped Despite Beating Earnings

TLDR

• Affirm posted Q2 EPS of $0.37, beating the $0.28 estimate by $0.09, while revenue hit $1.12 billion versus $1.06 billion expected.
• Stock fell 4.4% to $59.42 as management left out forward EPS guidance and gave mixed Q3 revenue projections.
• CEO Max Levchin sold 666,666 shares for $53.7 million at $80.62 in January, weeks before the earnings report.
• The stock trades at a P/E ratio of 88.69 and sits below its 50-day and 200-day moving averages.
• Analysts keep a Moderate Buy rating with a $89.16 average price target following recent upgrades from Morgan Stanley and Needham.

Affirm delivered a strong earnings beat Thursday but shares still tumbled. The buy now, pay later company reported Q2 earnings of $0.37 per share, crushing the $0.28 consensus by $0.09.

Revenue reached $1.12 billion for the quarter. That topped Wall Street’s $1.06 billion estimate. Both metrics came in ahead of expectations.

Yet the stock closed down 4.4% at $59.42. Volume exploded to 12.9 million shares, double the typical 6.1 million daily average. Something in the report spooked investors.

Affirm Holdings, Inc., AFRM

The culprit was forward guidance. Management projected Q3 revenue of $970 million to $1 billion, slightly under the $978.3 million consensus. Full-year revenue guidance of $4.09 billion to $4.15 billion matched estimates.

The Missing Piece That Hurt Sentiment

The real problem was what Affirm didn’t provide. The company left forward EPS guidance completely blank in its update. No projections for future earnings per share at all.

That gap created instant uncertainty. Investors had no roadmap for profitability despite the current quarter’s strong performance. Markets punish uncertainty.

Technical factors didn’t help matters. The stock trades below its 50-day moving average of $72.00 and 200-day average of $74.34. At a P/E ratio of 88.69, valuations are stretched.

High-multiple stocks often see profit-taking after earnings. Even good results can trigger selling when the stock already prices in aggressive growth.

Affirm’s revenue growth came from higher gross merchandise volume. That signals healthy demand for its core services. The company posted a net margin of 6.74% and return on equity of 7.75%.

Insider Sales Before the Drop

CEO Max Levchin made a massive sale in early January. He sold 666,666 shares at $80.62 each for approximately $53.7 million. That was weeks before this earnings report when shares traded higher.

CFO Robert O’Hare also sold 36,401 shares at $80.00 for $2.9 million. His sale cut his position by 96.38%. Over three months, insiders unloaded about 711,256 shares worth $57.2 million total.

The timing raised eyebrows. Large insider sales ahead of a stock decline always draw attention. Insiders may have legitimate reasons for selling, but the optics aren’t great.

Wall Street analysts remained mostly positive. Morgan Stanley upgraded to Overweight. Needham jumped from Hold to Buy with a $100 target. Cantor Fitzgerald assigned a Strong Buy rating.

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

Institutional investors control 69.29% of shares. The company carries a debt-to-equity ratio of 2.40 with quick and current ratios of 12.80. Market cap stands at $19.61 billion.

Over the past year, shares traded between $30.90 and $100.00. The stock is down 19.29% over three months and off 3.77% over the past year. Volume on earnings day showed investors weren’t willing to hold through the uncertainty.

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