The Affirm (NASDAQ: AFRM) stock price crashed by more than 10% on Wednesday as investors continued worrying about the Buy Now Pay Later (BNPL) industry. The stock dropped to a low of $24.51, which was lower than May’s high of $31.18.
Why is Affirm falling?
Affirm is a leading BNPL player that has a strong market share in the United States. The company has over 210,000 merchants in its platform and over 10 million users.
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Like other companies in the industry, Affirm extends credit to customers who shop in its merchants like Amazon and Peloton. It then takes a commission from the company and a smaller interest rate. Also, unlike credit card companies, Affirm does not charge late fees. It also does not check a person’s credit score, making it better to most people.
Therefore, as inflation soars, investors are concerned about missed payments even as delinquencies remain low. According to WSJ, about 3.7% of outstanding loan dollars in its balance sheet were at least 30 days late at the end of March. That was more than double where it was a year earlier.
Another concern among investors is that interest rates are set to keep rising. While higher rates are good for credit card companies like Chase and Citi, they are bad for Affirm. That’s because the other companies rely on cheap customer deposits while Affirm has to borrow.
In its most recent results, Affirm said that its total revenue rose by 54% to $355 million. Network revenue rose by 29% while net interest income jumped by 42%.
Affirm stock price is also struggling as competition in the sector rises. The firm is in stiff competition from companies like PayPal, AfterPay, Klarna, and Zip among others. In May, Klarna announced that it will focus on profitability as it made 10% layoffs.
Affirm stock price forecast
The four-hour chart shows that the AFRM stock price has been in a downward trend. It fell to a low of $13.80 in May. It then made a strong recovery as investors focused on the company’s earnings. However, it struggled moving above the descending trendline shown in black. It is also slightly below the 50-day moving average while the MACD has moved above the neutral level.
The stock will likely resume the downward trend as bears target the key support level at $20. A move above the descending trend will invalidate the bearish outlook.
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