Affirm Holdings Receives Hold Rating Amid Valuation and Expense Concerns

Needham initiates Affirm with Hold, citing high valuation at 32x 2026 earnings and concerns over stock-based compensation.

By Athena Xu

4/3, 13:14 EDT
Affirm Holdings, Inc.

Key Takeaway

  • Needham analyst initiates Affirm Holdings with a Hold rating, citing high valuation at 32 times 2026 earnings and expense concerns.
  • Despite long-term potential in BNPL space, majority of Wall Street analysts remain cautious with a Hold rating on Affirm.
  • Affirm's revenue growth outpaces industry, projected to grow at 20% annually over the next three years against an industry rate of 6.4%.

Valuation and Expense Concerns

Needham analyst Kyle Peterson initiated coverage of Affirm Holdings, a prominent "Buy Now, Pay Later" (BNPL) company, with a Hold rating, citing valuation and expense concerns as primary obstacles. Peterson pointed out that Affirm's valuation appears elevated at 32 times his 2026 earnings estimates, a figure that stands out when compared to the broader S&P 500 index. Additionally, Peterson raised concerns regarding the company's stock-based compensation plan, which accounted for 46% of Affirm's revenue in 2023. Despite recognizing stock-based compensation as a cash-efficient method for hiring and retaining employees, Peterson anticipates this will continue to be a drag on valuation due to the ongoing dilution it causes.

Market Position and Analyst Sentiments

Despite the valuation and expense concerns, Peterson acknowledges Affirm's potential as a long-term winner in the BNPL and digital lending space. This perspective is supported by Affirm's diverse product suite and notable partnerships, including those with Amazon and Shopify. However, the current sentiment among Wall Street analysts is cautious, with a majority rating Affirm as Hold. This caution reflects a broader hesitation, with investors still waiting for a pullback in Affirm Holdings' stock price.

Revenue Growth and Industry Outlook

Affirm Holdings has demonstrated impressive revenue growth, outpacing many competitors within the Diversified Financial industry. The company's revenue grew by 29% last year and has increased by 186% over the past three years. Analysts project Affirm's revenue to continue growing at a rate of 20% per annum over the next three years, significantly outperforming the industry's expected growth rate of 6.4% per year. This robust growth trajectory contributes to Affirm's high price-to-sales (P/S) ratio, which, despite being higher than many industry peers, reflects investor confidence in the company's future prospects.

Street Views

  • Kyle Peterson, Needham (Neutral on Affirm Holdings):

    "While we view AFRM as a long-term winner in BNPL and digital lending, we expect the aforementioned headwinds to keep the shares range-bound over the next 12 months."