'Buy Now, Cry Later'? Kerrisdale Says Affirm Is A Subprime Time Bomb

Core Viewpoint - Affirm Holdings Inc has seen a stock increase of approximately 30% over the past year, with analysts projecting a further upside of 30-40%, despite concerns raised by Kerrisdale Capital regarding the sustainability of this growth [1][2]. Growth and Credit Fundamentals - Kerrisdale Capital describes Affirm as a "Buy Now, Cry Later" company, suggesting that its rapid growth is masking deteriorating credit fundamentals, driven by aggressive lending to weaker borrowers at high interest rates [2][3]. - Affirm's Gross Merchandise Volume (GMV) has grown at a compound rate of over 30% since 2022, but this growth is linked to lending practices that may not be sustainable [3]. Revenue and Loan Yields - The average loan yields for Affirm have exceeded 30%, with a significant portion of revenue derived from high-APR products, which Kerrisdale argues does not democratize credit but rather exploits financially vulnerable consumers [4]. Risk Management Concerns - Kerrisdale estimates that Affirm is leveraged approximately six times, with loan loss reserves only at 1%-2% of GMV, which is insufficient given that normal loss rates can be around 6%-7% [5]. - If labor markets weaken and delinquency rates rise, the financial situation could deteriorate rapidly, leading to stalled growth and increased credit costs [6]. Valuation Risks - Kerrisdale warns that at current stock levels, there is little room for disappointment, suggesting that in a stress scenario, Affirm's stock could approach book value, indicating significant downside potential from current prices [7].