Shares of Affirm Holdings Inc. tumbled in midday trading Tuesday after a fintech firm delivered what one analyst saw as an ominous signal for fintech firms that rely on capital markets.

upstart Holdings Inc.upst,
-55.60%,
a fintech company that uses artificial intelligence in lending decisions, cut its full-year forecast on Monday night, acknowledging that the current macroeconomic climate could limit lending volumes and revealing that it was now holding more loans in its portfolio. balance sheet in a “market cleaning” move. .

“We believe the reading is negative for fintechs that rely on capital markets,” Stephens analyst Vincent Caintic wrote in a Tuesday downgrade of Affirm AFRM shares,
-11.46%.
He cut his rating on the buy-now-pay-later stock of the company to a weight below the same peso and lowered his price target to $17 from $51.

Affirm shares fell 15% in trading on Tuesday, while Upstart shares sank 60%.

“Upstart’s earnings print not only involved higher funding costs but also an inability to access capital markets, something that concerns us for AFRM as well,” Caintic wrote. “This adds to our expectations for GMV [gross merchandise volume] guidance down due to weak industry e-commerce sales.”

Caintic now has a “total lender” multiple of 10 times 2023 estimates for “normalized” earnings per share on Affirm shares. He made a similar move with shares in Upstart, which he also downgraded to underweight.

“Between the two, we prefer AFRM due to its shorter loan duration with consumers and likely higher repayment rate as consumers prioritize Affirm’s repayment mechanism over an Upstart unsecured loan,” he wrote.

Affirm is due to release its own quarterly results after the closing bell on May 12.

Although Caintic said he would “avoid AFRM in his 1Q22 earnings print,” he framed his view as part of a more general call. “We are also broadly negative about fintechs that rely on capital markets, especially those that seem willing to time the market like Affirm and Upstart,” Caintic added.

Morgan Stanley’s James Faucette remains more bullish on Affirm shares. He maintained an overweight rating and an $80 price target in an earnings preview on Tuesday.

Affirm updated its outlook optimistically in mid-March, but investors are increasingly concerned about the state of e-commerce growth in the wake of recent earnings reports from PayPal Holdings Inc. PYPL,
-0.14%
and Amazon.com Inc. AMZN,
+0.82%,
according to Faucette.

Affirm shares have plunged 54.0% over the past month, while the S&P 500 SPX index,
+0.96%
has decreased by 11.4%.

“As a result, we believe expectations about the AFRM outlook have been lowered significantly,” Faucette wrote. Her analysis of data and trends indicates that “the company can meet the expectations of 1Q GMV”.

However, investors are likely to focus more on the company’s prospects than its recent results, he said.

“Despite the slowdown in e-commerce, discretionary credit spending was strong in the first quarter, suggesting demand for AFRM installment loans may have persisted,” Faucette wrote. Still, macro uncertainty may make investors hesitant to extrapolate any Q1 AFRM upside to future quarters, especially as GMV’s impact on P&L is difficult to forecast due to the changing mix of volume and timing. of AFRM income.

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