The Affirm Advantage

Emblazoned with a market capitalization of $13.6 billion, Affirm Holdings, Inc. (AFRM) orchestrates a financial symphony connecting buyers and vendors through its payment grid, proffering an array of financial wares, including the coveted BNPL services.

The core of Affirm’s operational ethos orbits around crafting personalized payment blueprints for consumers, concurrently aiding merchants in fortifying sales through augmented transactions. The voyage of Affirm’s ascension has been fueled by the relentless expansion of its merchant constellation, enhancements in product offerings, and the astute deployment of risk mitigation strategies.

On Aug. 20, the dawn broke with Affirm’s melodious partnership with Hotels.com, an epochal collaboration enabling approved patrons to choreograph their dream escapades and amortize them over time through Affirm’s services, kindling wanderlust for countless souls. This masterpiece crescendos Affirm’s existing liaison with Expedia Group (EXPE), where Affirm reigns as the exclusive “buy now, pay later” torchbearer for Expedia and Vrbo.

Subsequently, on Aug. 13, Affirm unfurled a grandiose expansion of its alliance with Tekmetric, a foremost automotive repair atelier management solution provider affirming auto repair enterprises across the nation. Presently, the myriad of auto garages under Tekmetric’s aegis, empowered by Stripe Connect, can furnish their clientele with the prerogative to defray over time with Affirm for both virtual and tangible automotive fixations.

Affirm Ascends Post-Earnings Triumph and Glossy Q1 Guidance

Buoyed by an overwhelmingly robust fiscal Q4 disclosure on Aug. 28, Affirm Holdings manifested a stellar ascent, buoyed by luminous Q1 revenue prophecies, propelling its stock to soar by a staggering 32% in the subsequent trading epoch. The financial saga unraveled with quarterly revenue soaring by 47.9% year-on-year to $659.18 million, eclipsing the financial soothsayers’ estimates by $53.8 million. The revenue-to-Gross Merchandise Volume (GMV) ratio ascended to 9.1%, marking a handsome uptick from 8.1% in the preceding quarter of 2023.

The financial constellation was illuminated by the effulgence of ascending network revenue (28% y/y), burgeoning interest income (57% y/y), and the buoyant revenue from loan divestitures (116% y/y). Revenue less transaction costs (RLTC) bloomed by 70% year-over-year to $309 million, surging by a sino-100 basis points to 4.3% of GMV, a stately ascent from 3.3% of GMV in the homologous quarter of yesteryears. Noteworthy is the transcendence of RLTC as a fraction of GMV, eclipsing the company’s long-term 3 to 4% range, galvanized by the 2024-X1 securitization transaction affording approximately $30 million to RLTC during the stint.

The GMV ledger elucidates a 31% year-on-year ascent to $7.2 billion, an imposing contrast overshadowing universal e-commerce escalations. GMV emanating from its apex five merchants and platform consorts burgeoned collectively by 38% year-over-year, with incessant augmentations in shopping cart occupancy. Transactions threading Affirm’s network burgeoned by 42% year-on-year to 24.7 million in the fourth quarter, and soared by 15% sequentially from the bygone quarter of 2024. Concurrently, the average tally of transactions per active consumer continued its upward odyssey, settling at 4.9.

The headcount of active consumers bloomed to 18.6 million as of June 30, 2024, an ascent from 18.1 million on March 31 and 15.6 million on June 30, 2023. Hand in hand, the escalation in active merchant count accelerated for the third uninterrupted quarter, surmounting 300,000 by the curtain call of FY24.

The adjusted operating income jolted by $135 million year-over-year to $150 million in Q4, underwritten by a slew of product enhancements, merchant sprawls, judicious risk oversight, and financial finesse. Furthermore, the adjusted operating margin flamboyantly ascended to 22.7% from 3.3% in the analogous quarter last year. Affirm inked a Q4 GAAP deficit of $0.14 per share, vanquishing the consensus anticipation for a loss of $0.44 per share, a quantum leap from a $0.69 rut in the corresponding epoch last year.

On the whole, the financial tale unraveled a saga of grandeur with all core operational tenets showcasing an uptick on a year-over-year terminal. The nimble scaling muscularity and dovetailed partnerships with premier digital wallets and e-commerce platforms posit Affirm auspiciously for an effervescent growth expedition.

Casting a wary gaze ahead, Affirm prognosticates a GMV betwixt $7.1 billion and $7.4 billion for the extant quarter, with hailed revenues oscillating from $640 million to $670 million, and an affiliated operating margin ranging from 14% to 16%. Beyond the horizon of FY25, Affirm adumbrates GMV towering over $33.5 billion, cinched with an operating margin scouts at a meadow surpassing 18.4%, and revenue as a fraction of GMV benchmarking at least 10 basis points transcending the FY24 watermark. The company likewise prognosticates the dawn of GAAP operating income profitability in the fourth quarter of fiscal 2025.

The Fintech Revolution: Affirm’s Growth Trajectory and Upstart’s Skyrocketing Success

Affirm’s Ascendancy

Anticipation is mounting as financial giants Bank of America (BofA), RBC Capital, and Barclays elevate their price forecasts for Affirm Holdings. The bullish sentiment underlines a promising future for the company, emboldening investors and analysts alike.

Apple’s pivotal announcement in mid-June catapulted Affirm into the limelight, cementing its status as a key U.S. partner post the termination of the Apple Pay Later program. With Affirm’s Gross Merchandise Volume (GMV) poised for acceleration, a surge in top and bottom-line growth is on the horizon.

Projections for fiscal 2025 paint a rosy picture, with analysts foreseeing a 37.72% plunge in net losses, dropping to $1.04 per share. Furthermore, a robust 29.33% uptick in revenue to $3.00 billion is on the cards, promising a lucrative period ahead for Affirm.

While Affirm’s trailing twelve months Price/Sales ratio of 5.87x surpasses the sector median, it remains beneath its five-year average of 7.41x, drawing attention to its potential for exponential growth.

Analyst sentiments are divided, reflected in a consensus “Hold” rating for AFRM stock. However, with the highest target price set at $65.00, implying a substantial 48% upside from its Friday closing, the future appears bright for Affirm and its investors.

The Case For Upstart Stock

At a market capitalization of $3.7 billion, Upstart Holdings, Inc. shines as a leading AI lending marketplace, forging connections between millions of consumers and a broad network of financial institutions. Leveraging advanced AI models and cloud applications, it delivers cutting-edge credit solutions.

Backed by over 1,600 variables and trained on a vast dataset comprising 58 million repayment records, Upstart’s AI models revolutionize risk assessment. The result? Enhanced approval rates and improved repayment behaviors, setting it apart in the competitive financial landscape.

In a remarkable six-month rally, UPST shares surged by 59%, outstripping its peers like Affirm (AFRM) and the broader market index. This exceptional growth trajectory cements Upstart’s position as a formidable force in the fintech arena.

Upstart Stock Soars After Stellar Quarterly Results and Outlook

Aug 7 marked a watershed moment for Upstart Holdings as its stock catapulted by over 39% post the announcement of stellar Q2 results and robust Q3 guidance. The cloud-based AI lending platform’s performance exceeded expectations, amplifying investor confidence in its future prospects.

Although Q2 revenue from fees witnessed a slight dip year-over-year, the net interest income displayed encouraging growth. Noteworthy was the marked improvement in GAAP net losses and adjusted EBITDA, underscoring Upstart’s resilience and adaptive business strategy.

The company’s strong outlook for Q3 2024, with anticipated revenue of $150 million, sets the stage for a promising future. Bolstered by a revamped AI model, fortified funding streams, and enhanced operational efficiency, Upstart anticipates a resurgence in growth and profitability.

Unveiling the Inner Workings of Upstart Holdings’ Recent Surge

Internal Factors Propel Upstart

Upstart’s recent surge was not merely a byproduct of overarching macroeconomic trends or dwindling risks but was predominantly fueled by internal advancements.

AI Model Innovations and Operational Gains

Key to Upstart’s recent success were substantial improvements in its AI models. The introduction of Model 18, hailed by the CEO as a monumental enhancement, marked a significant milestone in the company’s evolution. Moreover, reaching a new automation peak facilitated Upstart’s lightning-fast approval rate of 91% for credit applications. Coupled with revamped funding channels and a strategic reduction in balance sheet reliance for loans, operational efficiency soared.

Analyst Reactions and Stock Performance

The positive trajectory of Upstart Holdings’ quarterly results reverberated well with analysts, prompting a wave of optimistic forecasts. Industry stalwarts like JPMorgan, Piper Sandler, and Barclays raised their price targets, while Citi upgraded the stock rating from “Sell/High Risk” to a more balanced “Neutral/High Risk.”

Projection and Valuation

Analyst estimates foresee Upstart reporting a loss of $0.68 per share in fiscal 2024, with profitability anticipated in fiscal 2025 at $0.22 per share. Revenue projections indicate a robust 10.60% rise to $567.98 million in fiscal 2024 and a further 28.05% surge to $727.28 million in fiscal 2025.

Despite trading at 6.37 times TTM sales, below its five-year average of 7.27x, the premium relative to sector benchmarks and peers like Affirm necessitates sustained operational excellence to validate its valuation.

Investor Sentiment and Market Position

With a consensus “Hold” rating, Upstart finds itself positioned among various analyst preferences. While ranging from “Strong Buy” to “Strong Sell,” the stock’s current premium valuation compared to even the Street-high target of $41.00 underscores investor confidence in its future prospects.

A Comparative Analysis: AFRM vs. UPST

While both Affirm and Upstart hold promise in light of the growing market demand, Affirm emerges as a more compelling investment opportunity at present. Noteworthy improvements in key operational metrics and a favorable growth outlook position Affirm favorably against UPST. Moreover, Affirm’s relative valuation attractiveness and margin of safety compared to its share price target enhance its investment appeal.