Affirm's Profitability Upgrade Masks Persistent Valuation and Risk Concerns

What happened

Seeking Alpha has upgraded Affirm to 'Strong Buy,' citing sustained GAAP profitability, 30% YoY revenue growth, and a valuation de-risked to 4x forward sales from 7x. The article portrays an inflection point with robust incremental operating margins and a net cash balance sheet, emphasizing operational leverage. However, DeepValue's analysis of SEC filings reveals Affirm trading at 104x TTM P/E with a 204% premium to its DCF-based intrinsic value of $24.11, indicating severe overvaluation. Critical risks persist, including high leverage (Net Debt/EBITDA ~9x), thin interest coverage (~0.3x), sector delinquencies near 30%, and regulatory uncertainty from CFPB oversight. Thus, while Affirm's execution is improving, the stock's price already embeds optimistic assumptions, offering limited margin of safety amid unresolved vulnerabilities.

Implication

The upgrade may boost short-term sentiment, but long-term investors must assess whether profitability justifies current multiples given Affirm's dependency on benign credit conditions and cheap funding. High leverage and sector-wide delinquencies increase vulnerability to economic downturns, potentially spiking loan losses and pressuring margins. Regulatory changes, such as CFPB rules treating BNPL like credit cards, could compress unit economics and undermine the profitability narrative. Affirm's reliance on key partners like Amazon and Shopify adds concentration risk, while competition from rivals like Klarna escalates margin pressures. Therefore, a defensive stance is warranted until valuation aligns with intrinsic value or material risk mitigation occurs, reinforcing a potential sell thesis.

Thesis delta

The article confirms Affirm's operational progress toward GAAP profitability but does not address the core valuation and risk concerns highlighted in the DeepValue report. No shift in the potential sell thesis is warranted, as overvaluation, leverage, and regulatory uncertainties remain unchanged, and investors should avoid the stock until a meaningful price correction or risk reduction materializes.