Morgan Stanley downgrades Affirm, says the payment firm’s offerings are too narrow for its ambitions
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It’s time to step to the sidelines on Affirm following its disappointing earnings results this week, according to Morgan Stanley. Analyst James Faucette downgraded the online payments stock to equal weight from overweight, saying the scope of Affirm’s offerings are too narrow. He also slashed his price target to $15 per share from $46. The new target implies upside of more than 12%. “BNPL [Buy Now, Pay Later] can be a great way to give younger consumers and those with limited credit history access to purchasing credit, and Affirm’s BNPL’s structure helps establish behavior and repayment discipline,” Faucette wrote in a Friday note. “However, by limiting its offering to BNPL and developing products that have substantially different features (e.g. Debit+) than what has been broadly adopted by the market (i.e. revolving credit), the challenges to customer education and adoption rise,” Faucette added. Affirm shares fell more than 3% in the premarket Friday. AFRM 1D mountain AFRM falls The downgrade comes after Affirm announced Wednesday that it’s slashing 19% of its workforce , with CEO Max Levchin saying in a message to employees that the firm “consciously hired ahead of the revenue required to support the size of the team” during the early part of the pandemic. However, he said “everything changed in mid-2022” as rising interest rates and slowing consumer spending raised the cost of Affirm’s borrowing. “The root cause of where we are today is that I acted too slowly as these macroeconomic changes unfolded,” Levchin wrote. What’s more, Affirm missed analyst expectations on both the top and bottom lines in its second-quarter earnings report. “We think that Affirm’s broad ambitions self-limit its potential, compounded near-term by the adverse drag of a poor credit cycle and the need to build in new pricing ranges and interest rate ceilings,” Faucette wrote. “We think a better, more efficient strategy would be to use BNPL to attract customers for the initial transactions and then move the best customers into traditional credit products (e.g. credit cards) as soon as practical, and then use incentives like revised credit lines and universal acceptance to encourage increased engagement,” he added. Affirm shares have increasingly come under pressure since the company’s initial public offering in January 2021. It ended its first year on the Nasdaq trading at $100.56. In 2022, however, the stock cratered 90%. It has since rebounded somewhat, up 37% in 2023. Affirm did not immediately respond to CNBC’s request for comment. —CNBC’s Michael Bloom and Lauren Feiner contributed to this report.