Affirm Holdings (AFRM) vs. Intuit (INTU): Which Stock Is More Likely to Beat Earnings on Thursday?

In this piece, I evaluated Affirm Holdings, Inc. (AFRM) and Intuit Inc. (INTU) to determine which stock could surpass earnings set to be released on August 24, 2023. Based on the fundamental comparison of these stocks, I believe INTU is more likely to beat earnings estimates and is a better buy for the reasons explained throughout this article.

AFRM, the payment network that empowers consumers and assists merchants in driving growth, will publish its fourth quarter and fiscal year 2023 results tomorrow. During the third quarter, AFRM reported a loss of $0.69 per share, still topping the consensus loss per share estimate of $0.91. The fintech company’s revenue was $381 million, beating the $366.90 million analysts expected.

Although Affirm’s losses for the third quarter were lower than anticipated, a revenue deficit of $205.70 was more than triple 2022’s setback.

After the better-than-expected performance, the fintech firm slightly improved the mid-point of its full-year outlook across all metrics. AFRM expects revenue to be in the range of $390-$415 million for the fourth quarter and $19.89-$20.04 billion for the fiscal year 2023.

Further, the company’s gross merchandise volume (GMV) is expected to be between $5.20-$5.35 billion for the fourth quarter and $19.89-$20.04 billion for the full year. Its adjusted operating margin is estimated to arrive between negative 5%-1% for the quarter and negative 7%-5.9% for 2023.

At the same time, analysts expect AFRM’s revenue to increase 11.6% year-over-year to $406.26 million for the quarter that ended June 2023. The company is estimated to report a loss per share of $0.85 for the to-be-reported quarter, compared to $0.65 in the year-ago period.

For the fiscal year 2023, the consensus revenue estimate of $1.55 billion indicates an improvement of 14.8% year-over-year. But analysts expect AFRM’s loss per share for the current year to widen 38.7% year-over-year to $3.48.

INTU, the global financial technology platform that makes TurboTax, Credit Karma, QuickBooks, and Mailchimp, will also announce its fourth-quarter and full-year financial results for 2023 on August 24, following the close of the market. The company reported net revenue of $6.02 billion and adjusted earnings per sales of $8.92 for the third quarter, up 7% and 17% year-over-year, respectively.

While INTU posted lighter-than-expected sales, it beat analysts’ earnings expectations. Analysts polled by FactSet expected third-quarter earnings of $8.48 per share on revenue of $6.09 billion. Following a solid financial performance, the company raised its full-year 2023 guidance.

“We are raising our total company revenue, operating income, and earnings per share guidance for the fiscal year, demonstrating the strength and resiliency of our platform and portfolio in uncertain times,” said Sasan Goodarzi, INTU’s chief executive officer. “The benefits of our global financial technology platform are more mission-critical than ever to our customers.

The financial software company INTU expects revenue of $14.28 billion to $14.32 billion, an increase of nearly 12-13% year-over-year, up from the prior guidance of 10-12% growth. The company’s non-GAAP earnings per share are expected to be between $14.20-$14.25, an increase of approximately 7 to 8%, compared to previous guidance for a decline of nearly 5 to 1%.

For the fourth quarter that ended July 31, INTU expects revenue growth of approximately 9 to 10% and non-GAAP earnings per share of $1.46 to $1.48.

Meanwhile, analysts expect INTU’s revenue and EPS for the fourth quarter to increase 9.4% and 30% year-over-year to $2.64 billion and $1.43, respectively. Moreover, the company’s revenue and EPS for the to-be-reported fiscal year 2023 are expected to grow 12.4% and 20.1% year-over-year to $14.30 billion and $14.23, respectively.

INTU is a clear winner in terms of price performance, with 7.4% returns over the past three months compared to AFRM’s 2.1% decline. INTU has gained 20.1% over the past six months, while AFRM surged 5.7%. Also, INTU’s 9.4% gains over the past year compared to AFRM’s decline of 51.8%.

Here are the reasons why we think INTU could perform better in the near term:

Latest Developments

On August 15, AFRM and Selfbook, the tech company modernizing hotel payments and bookings, announced a partnership, bringing Affirm’s flexible, transparent payment options to Selfbook’s hotel bookings. AFRM and Selfbook are launching the partnership with their first joint hotel partners, Cape May La Mer, Victor Hotels, and The Kartrite. This collaboration should bode well for the companies.

On June 29, INTU announced working with OpenAI to accelerate generative AI-driven application development on its proprietary Intuit generative AI operating system (GenOS) to support the company’s mission to power prosperity worldwide for more than 100 million consumer and small business customers. This partnership with OpenAI might boost the company’s innovation and growth.

Recent Financial Results

For the third quarter that ended March 31, 2023, AFRM’s total net revenue was $380.98 million, up 7.4% from the prior year’s period. However, the company’s operating loss widened by 36.9% from the year-ago value to $310.04 million. In addition, AFRM’s net loss worsened by 276.2% and 263.2% year-over-year to $205.68 million and $0.69 per share, respectively.

INTU’s net revenue increased 6.9% year-over-year to $6.02 billion in the third quarter of fiscal 2023. Its non-GAAP operating income grew 15.6% from the prior-year period to $3.36 billion. Also, the company’s non-GAAP net income rose 15.5% year-over-year to $2.52 billion, and its non-GAAP net income per share was $8.92, an increase of 16.6% year-over-year.

Past And Expected Financial Performance

AFRM’s revenue has grown at a 72.2% CAGR over the past three years.

AFRM’s revenue for the first quarter (ending September 2023) and fiscal year (ending June 2024) are expected to increase 19.5% and 23.4% year-over-year to $429.86 million and 1.91 billion, respectively. However, the company is expected to report a loss per share of $0.74 and $2.92 for the ongoing quarter and fiscal year 2024, respectively.

Over the past three years, INTU’s revenue and EBITDA have grown at 27.1% and 29% CAGRs, respectively. The company’s net income and EPS have increased at 18.8% and 15.9% CAGRs over the same time frame, respectively, while its total assets have grown at a 35.1% CAGR.

Analysts expect INTU’s revenue and EPS for the current quarter (ending October 2023) to increase 12.7% and 20% year-over-year to $2.93 billion and $1.99, respectively. For the fiscal year 2024, the company’s revenue and EPS are expected to grow 11.8% and 12.1% from the previous year to $15.99 billion and $15.95, respectively.

Profitability

INTU’s trailing-12-month revenue is 9.32 times what AFRM generates. Moreover, INTU is more profitable, with a trailing-12-month gross profit margin of 79.62% compared to AFRM’s 45%. Also, INTU’s trailing-12-month EBITDA margin and net income margin of 26.78% and 15.91% are significantly higher than AFRM’s negative 66.41% and negative 64.12%, respectively.

Furthermore, INTU’s trailing-12-month Return on Equity (ROE), Return on Assets (ROA), and Return on Total Capital (ROTC) of 12.96%, 9.12%, and 7.92% compared with AFRM’s negative 37.97%, negative 15.87%, and negative 10.64%, respectively.

Valuation

In terms of trailing-12-month Price/Sales, AFRM is currently trading at 2.84x, 70.9% lower than INTU, which is trading at 9.77x. AFRM’s trailing-12-month EV/Sales multiple of 5.30 is lower than INTU’s 9.88. Also, AFRM’s trailing-12-month Price to Book of 1.72x is lower than INTU’s 7.78x.

Thus, AFRM is relatively more affordable.

POWR Ratings

AFRM has an overall rating of F, which equates to a Strong Sell in our proprietary POWR Ratings system. Conversely, INTU has an overall rating of B, translating to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AFRM has a grade of D for Quality, consistent with its lower-than-industry profitability. The stock’s trailing-12-month EBITDA margin and net income margin of 66.41% and 64.12% compared to the industry averages of 19.98% and 25.77%, respectively.

On the other hand, INTU has a grade A for Quality, in sync with higher profitability relative to its peers. Its trailing-12-month EBITDA margin and net income margin of 26.78% and 15.91% are significantly higher than the respective industry averages of 9.15% and 2.01%.

In addition, AFRM has a grade of D for Growth and Sentiment, in sync with its poor financials and unfavorable analyst estimates. INTU, in contrast, has a B grade for Growth and Sentiment, consistent with its solid financial performance in the previously reported quarter and optimistic analyst expectations.

Of the 76 stocks in the Technology - Services industry, AFRM is ranked #74. INTU is ranked #30 of 135 stocks in the Software - Application industry.

Beyond what we’ve stated above, we have also rated both stocks for Value, Momentum, and Stability. Click here to view AFRM Ratings.  Get all INTU ratings here.

The Winner

While digital commerce platform operator AFRM surpassed its third-quarter revenue and earnings estimates, it reported widening losses. Furthermore, in the to-be-reported quarter and fiscal year 2023, the company could fail to beat analysts’ revenue estimates and continue reporting massive losses.

Financial tech company INTU beat expectations for earnings in its fiscal third quarter though revenue missed estimates. But the company reported significant year-year-year growth in its revenue and earnings. Moreover, INTU is expected to maintain this momentum, surpassing analysts’ expectations and reporting higher earnings and revenue for the fourth quarter and fiscal year 2023.

Hence, AFRM’s stagnating revenue, soaring losses, low profitability, and bleak growth prospects make its INTU a better buy now.

Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Technology-Services industry here. Click here to access top-rated stocks in the Software-Application industry.

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INTU shares were unchanged in premarket trading Wednesday. Year-to-date, INTU has gained 26.05%, versus a 15.43% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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