Buy-now-pay-later (BNPL) platform provider Affirm Holdings Inc. (NASDAQ: AFRM) stock is up 439% year-to-date (YTD). If you’re wondering if this business services sector company released blockbuster revenues and an earnings blowout, they didn't. In fact, shares were trading around $27 after its latest earnings report. They reached $51.88 in the following month during the holiday shopping season. Investors who got into shares earlier this year are delighted.

However, any investors who took a position before February 2022 are still in the red; many are in deep red. The share of Affirm reached a high of $176.65 in November 2021; then, it was downhill since then, reaching a low of $8.63 by December 2022.

2023 Holiday shopping season optimism surge

While Affirm shares dazzled investors in December, shares are still down 76% from their all-time highs. Shares of Block Inc. (NYSE: SQ), the parent company of competitor Afterpay, saw its shares spike back into positive territory, up 19% YTD. Block shares more than doubled after its Q3 2023 earnings report release on Nov. 3, 2023. Affirm Shares surged nearly 70% since Black Friday.

Optimism for the 2023 holiday shopping season was further accelerated as e-commerce platform provider Shopify Inc. (NASDAQ: SHOP) reported a 24% YoY revenue surge to a record $9.3 billion over the Black Friday Cyber Monday (BFCM) weekend. Shopify served over 61 million customers that weekend, which helped propel shares up 115% YTD.

Tight budgets and high-interest rates push consumers to BNPL.

A key rationale for the surge in Affirm's business is the reality of a weaker consumer bitten by high-interest rates and tighter discretionary spending budgets. With credit card rates at all-time highs, consumers mistakenly assume that BNPL programs are a better alternative to credit cards since they claim to be fee and interest-free, which is hardly the case.

Most of Affirm's loans are interest-bearing. Perhaps they like being able to break up purchases into a set number of payments to stretch out budgets over several months. The temptation to receive a product now and pay for it in installments later works. It’s like reverse layaway. Affirm claims that 54% of consumers want a BNPL option at checkout, and 76% of consumers would delay or not purchase without a pay alter option.

Reality check

Based on the latest earnings report on Nov. 8, 2023, Affirm recorded a loss of 57 cents per share for its fiscal Q1 2024, which was still 13 cents better than consensus analyst estimates for a loss of 70 cents per share. Revenues rose 37.3% YoY to $496.55 million, beating analyst estimates of $444.48 million. Gross merchandise volume (GMV) grew 28% YoY to $5.6 billion. GMV represents the total dollar value of all transactions facilitated through the platform as well as the financing charges and interest, late fees and other charges.

In-Line Guidance

Affirm provided in-line guidance for the holiday shopping season. For fiscal Q2 2024, Affirm expects revenues of $495 million to $520 million versus $503.58 million consensus analyst estimates. GMV is expected to be between $6.7 billion and $6.9 billion. For the fiscal full year 2024, Affirm expects a GMV of over $24.25 billion. The company notes that the forward interest rate curve and negative sentiment, along with student loan balance repayments, are all minor headwinds to be expected. Get AI-powered insights on MarketBeat.

Morgan Stanley downgrade

On Dec. 18, 2023, Morgan Stanley downgraded shares of Affirm to Underweight from Equal-Weight with a price target of $20, up from $15. Analyst James Faucette commented, “While we believe Affirm is executing well amid its goal of becoming a more meaningful player in the payments landscape, at $44, we believe the market has gotten ahead of itself.

On Dec. 19, 2023, Affirm announced it had been added as a pay-later option with monthly payment at self-checkout lanes at 4,500 Walmart Inc. (NYSE: WMT) stores in the United States.

Affirm Holdings analyst ratings and price targets are at MarketBeat. Affirm Holdings peers and competitor stocks can be found with the MarketBeat stock screener. AFRM has a 21% short interest.

Weekly cup and handle breakout

The weekly candlestick chart on AFRM illustrates a cup and handle breakout pattern. The cup lip line commenced around $25.63 in August 2022. Shares ground down to a low of $8.63 by December 2022. The weekly market structure low (MSL) breakout was triggered through 12.81, surging shares up to $22.75 by January 2023 before they crumbled back down to $9.15 by March 2023. AFRM staged a choppy rally back up to the $25.63 lip line in September 2023 before falling to $15.97 to commence forming the handle.

AFRM broke out through the lip line in late November 2023 and continued to propel higher on a short squeeze. The weekly relative strength index (RSI) surged up through the overbought 70-band in late November and has continued climbing to the nosebleed height of the 83-band. Pullback support levels are at $25.63, $20.20, $17.98 and $15.98.