Considering shares fell 90% last year, investors might be surprised to learn that there is still a bull case for Affirm Holdings Inc (NASDAQ: AFRM). But the fintech company, founded in 2012 and IPO’d in January 2021, has had a wild ride in its first two years of public trading, and it doesn’t look like that will stop anytime soon. 

Its shares, perhaps unsurprisingly, shot too high after high through the back end of 2021, but like many other high-flying growth stocks, the party ended there. They endured a horrible year after that, touching fresh all-time lows in the final week of December. So with that as the scene setter, where is this bull case? 

Out On The Table

Well, those of us who didn’t get caught up in last year’s selloff are looking at a stock currently trading 70% higher than where it closed out 2022, having at one point been up 170%. For context, the S&P 500 index is up about 7% in the same timeframe. Now obviously, they have very different risk profiles. Still, as we’ve written about multiple times in the past weeks, there’s a budding recovery story being played out for many of the most beaten-down stocks. Let’s get all the good and bad information out on the table and look. 

For starters, last week saw the company release its fiscal Q2 earnings, which missed the mark. Revenue was only up 10% on the year and well below the consensus, while management guided lower for the coming quarters too. They’re not waiting in hope for things to turn around either suddenly, and announced at the same time that 19% of their employees were being laid off.

For context, this impacted about 500 people and was in effect immediately. By way of an explanation, CEO Max Levchin told investors that "we began increasing prices for merchants and consumers later in the year than we should have. This hurt our ability to approve more consumers and improve our margin." 

In addition to the layoffs, they’re also downsizing their San Francisco office as part of a broader restructuring plan for 2023. This is expected to yield annualized savings of between $77-$83 million, which is where it gets interesting.

If investors can pinch their noses for the next little bit, we could look at the mother of all recovery rallies once the broader economic sentiment picks up again. For it's this, and its souring last year, that did so much damage to Affirm’s performance. 

As one of the companies at the forefront of the new Buy-Now-Pay-Later (BNPL) industry, investors flocked to Affirm when interest rates were low, and consumer spending was at all-time highs. But with soaring inflation and rising interest rates, people have been tightening their belts and learning to say no.

But like every market crash, it certainly hurts as you go through it, but eventually, things turn. And that’s where the opportunity is with Affirm today.

The Recovery Has Begun

We’re already seeing investors pouring back in, and they’ve taken shares this year already from under $9 to over $20. There’s been some selling in the wake of last week's update. Still, a 12% jump yesterday indicates fresh demand coming in.

Wall Street has shrugged off the report as not altogether surprising. Instead, it is sizing up the recovery potential buoyed by cooling inflation and signs the Fed might be nearing the end of its tightening cycle. 

Fundamental metrics for a BNPL firm, such as active consumers and transactions from repeat customers, are performing very well. Last week’s report showed year-on-year growth of 39% and 86% here, respectively. People want to use their service; they just can’t right now when they have to focus on putting food on the table. If you’re a believer that the good days will come again, then at the very least Affirm deserves a spot on your watchlist.