Wedbush initiates coverage of Affirm at 'underperform'

Wedbush Securities analyst David Chiaverini initiated coverage of Affirm Holdings Inc. at "underperform" with a price target of $15.

The rating is based on Affirm's "more questionable" path to GAAP profitability due to the "significant" level of stock-based compensation and enterprise warrant and share-based expense included in its financials, Chiaverini said. In his rating, the analyst also considered the increasing competition in the buy now, pay later space, and possible pressure on the company's gross merchandise volume, or GMV, as industry forecasts call for an e-commerce spending slowdown.

Additionally, Chiaverini said he is concerned about Affirm's ability to cover its cost of capital as funding costs elevate. The company's operating margins could be pressured by increasing funding costs and be further pressured by rising net charge-offs, according to the analyst.

"Rising NCOs and higher funding costs could potentially lead to lower GMV growth as the company potentially tightens its credit box to maintain its revenue less transactions costs margin guidance of 3% [to] 4%," Chiaverini wrote in a June 7 research report. "We believe Affirm could be well-served by obtaining a bank charter in order to benefit from stable, low-cost deposits for its funding."

The analyst mentioned he likes several aspects of the Affirm story, including the company's "compelling" value proposition to customers and merchants, the growth in its merchant relationships, and its Debit+ product, a consumer budgetary solution with the potential to produce "strong uptake."

For Affirm, Chiaverini estimates per-share losses of $2.66 and $3.45 for 2022 and 2023, respectively.

The company's shares were down 6.77% to $21.75 at 11:18 a.m. ET on June 9.