Affirm's Canadian Tax Deal Highlights Growth Execution Amid Persistent Overvaluation and Risk Concerns

What happened

Affirm Holdings has expanded its BNPL services into tax preparation through a partnership with H&R Block Canada, marking a move beyond retail into a new vertical. This deal deepens Affirm's push into Canada, aligning with its long-term strategy for international growth as noted in recent filings. However, the company continues to face significant headwinds, including sector delinquencies near 30%, heavy reliance on funding markets, and unresolved regulatory scrutiny from bodies like the CFPB. Despite achieving GAAP profitability and strong free cash flow, Affirm's stock trades at approximately 104x TTM EPS and a 200% premium to DCF-based intrinsic value, reflecting excessive optimism. This expansion, while operationally positive, does little to offset the underlying vulnerabilities of a leveraged balance sheet and high valuation multiples that leave investors with minimal margin of safety.

Implication

The H&R Block Canada partnership demonstrates Affirm's ability to diversify into non-retail segments and execute on its international expansion plans, potentially boosting GMV in the medium term. However, this move introduces additional regulatory complexity in Canada and may not significantly impact revenue given the small scale relative to core operations. Affirm's financial health remains precarious, with net debt/EBITDA at 9x and interest coverage of 0.3x, making it vulnerable to credit or funding shocks. Current valuation metrics, such as a 204% premium to intrinsic value, already price in robust growth, leaving equity holders exposed to downside if growth slows or risks materialize. Consequently, while the news is strategically sound, it underscores the DeepValue report's 'POTENTIAL SELL' judgment, as the stock's risk/reward profile remains unfavorable for value-oriented investors.

Thesis delta

The H&R Block Canada deal is an incremental step in Affirm's growth strategy and does not shift the fundamental investment thesis. It reinforces the company's execution capabilities but fails to address the overvaluation, leverage, and regulatory risks that underpin the 'POTENTIAL SELL' stance. No material change in outlook is warranted, as the core concerns remain unmitigated.