Affirm (NASDAQ: AFRM) stock price tumbled by over 9% on Wednesday as technology firms dived. After peaking at $25.55 in September, the shares have tumbled by over 31% to the current $17.72. This drop brought its total market cap to over $5.5 billion, down from an all-time high of over $20 billion.

Affirm, one of the biggest Buy Now Pay Later (BNPL) in the United States, is going through major headwinds. Its growth has slowed while its cost of financing has jumped as the Federal Reserve has hiked interest rates from zero to a two-decade high of 5.50%.

Affirm is also seeing substantial competition in its key markets. Some of the key competitors are Block, which owns AfterPay, Klarna, PayPal, and Sezzle. Still, Affirm maintains a good competitive advantage, which has driven its revenue growth. 

In September, the company said that its Gross Merchandise Volume (GMV) jumped to more than $5.5 billion in the last quarter. And despite of the rising competition, its active customers in the quarter jumped to over 16.5 million. 

The cost of living crisis has drawn many people to BNPL as their cash balances fall. Most importantly, Affirm’s revenue jumped by more than 20% to over $446 million. 

The challenge for Affirm is that it needs to borrow capital, which it lends to customers. This capital is now competing with attractive yields from places like money market funds (MMF) and certificates for deposits (CDs). As a result, it has to pay higher interest rates for its funds.

While Affirm is able to compensate this by charging higher interest rates, it is being hit by its interest-free option. Further, results by companies like American Express shows that credit card delinquency rate is getting worse, especially as people start paying their student loans. 

Affirm will provide more details about this on November 8th when it will publish its results. Analysts believe that the company’s revenue rose to $444 million in the third quarter.

AFRM chart by TradingView

The daily chart shows that the AFRM share price has been under pressure in the past few days. It dropped to a low of $17.23 on Wednesday, down from the year-to-date high of $25.5. The shares have formed an ascending channel and moved below the 50-day and 100-day moving averages.

They are slightly above the lower side and is slightly above the 23.6% Fibonacci Retracement level. Therefore, the outlook for the shares is bearish, with the next key support being at $16.70, the lower side of the channel. A move below that level will see it drop to the support at $13.65, the lowest point on August 23rd.

The alternative situation is where the shares retest the lower side of the channel and then bounce back to the upper side of the channel at $25.50.

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