Latest Developments:
In 1Q25, Affirm (AFRM) posted strong revenue growth (+41% y/y), with gross merchandise volume (GMV) up 36% y/y. Operating margins improved significantly, with net loss margin narrowing to -14.35% from -34.59% last year. Despite substantial progress towards profitability, AFRM expects to reach operating income profitability by 4Q25.

Investment Case:
Affirm is positioned well in the rapidly expanding BNPL (Buy Now, Pay Later) market, capturing 34% of the market share. However, the company faces high volatility (90% annualized volatility) and is highly overvalued, with a price-to-sales ratio of 9.57x, suggesting a 30% downside. Given its substantial beta of over 3, it’s crucial for investors to wait for a better entry point.

Valuation:
Using a price-to-sales multiple of 5.34x, based on expected revenue of $3.1 billion for FY2025, the company’s market cap should be around $16.55 billion, indicating a 30% overvaluation from its current market cap of $22.46 billion.

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