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Affirm (AFRM) Eyes Q3 Earnings Beat on Higher Spending Volume

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Affirm Holdings, Inc. (AFRM - Free Report) is poised to beat on earnings for the third quarter of fiscal 2022, results of which are set to be released on May 12, after the closing bell.

In the last reported quarter, this leading payment network’s adjusted loss per share of 57 cents was wider than the Zacks Consensus Estimate of a loss of 44 cents, primarily due to escalating operating costs. A significant jump in sales and marketing, and technology and data analytics expenses affected the bottom line.

Let’s see how things have improved prior to the third-quarter fiscal 2022 earnings announcement.

Trend in Estimate Revisions

In the past week, the Zacks Consensus Estimate for third-quarter fiscal 2022 loss per share of 50 cents has witnessed no upward or downward revisions. This is indicative of a 30.6% improvement from the last fiscal-year quarter’s reported figure. Similarly, the Zacks Consensus Estimate for revenues is pegged at $341.8 million, suggesting an increase of 48.2% from the actuals registered in the last fiscal year‘s comparable quarter.

Affirm missed on earnings in each of the trailing four quarters, the average negative surprise being 72.2%. This is depicted in the graph below.

Affirm Holdings, Inc. Price and EPS Surprise

Affirm Holdings, Inc. Price and EPS Surprise

Affirm Holdings, Inc. price-eps-surprise | Affirm Holdings, Inc. Quote

What the Quantitative Model Suggests

Our proven model predicts an earnings beat for Affirm this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat.

Earnings ESP: Affirm has an Earnings ESP of +23.39%. This is because the Most Accurate Estimate is currently pegged at a loss of 38 cents per share, narrower than the Zacks Consensus Estimate of a loss of 50 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.  

Zacks Rank: Affirm currently has a Zacks Rank #3.

Factors Driving Better-Than-Expected Earnings

The payment solution provider is expected to have gained from higher consumer spending in the March quarter. Overall economic recovery aided consumer spending growth, courtesy of the relaxation of COVID-related restrictions and travel bans. This, in turn, is likely to have augmented the strength of active merchants and consumers. The sales figures from the merchant network and the virtual card network are likely to have risen. The Zacks Consensus Estimate for merchant network revenues is pegged at $117 million, indicating growth from $98 million a year ago.

Gross Merchandise Volume for third-quarter fiscal 2022 is likely to have been expanded by solid partnerships with merchants and the frequency of engagement. Affirm anticipates Gross Merchandise Volume for the quarter under review within $3.61-$3.71 billion, indicating a rise from $2.3 billion in the year-ago period. This is likely to have positioned AFRM well for reaping greater profits than the prior fiscal-year quarter’s level.

AFRM’s expanded partnership with Amazon.com, Inc. (AMZN - Free Report) is likely to have brought more customers to its network, boosting its platform usage and positioning it for an earnings beat. Amazon’s exclusive third-party buy now, pay later solution is expected to have buoyed demand for Affirm’s services. Also, the Zacks Consensus Estimate for interest income in the fiscal third quarter is pegged at $137 million, indicating a jump from the previous fiscal-year quarter’s $94.5 million.

Affirm expects third-quarter fiscal 2022 transaction costs within $187-$192 million, indicating an escalation from $97 million in the last fiscal year quarter’s reading. This might have partially offset the positive factors mentioned above.

Other Stocks That Warrant a Look

Here are some other companies worth considering from the Business Services space with the right combination of elements to also beat on earnings this time around:

Marqeta, Inc. (MQ - Free Report) has an Earnings ESP of +2.70% and a Zacks Rank of 3.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Marqeta beat on earnings twice in the last three quarters and missed on one occasion.

The Zacks Consensus Estimate for MQ’s current-quarter revenues is pegged at $161 million.

Dada Nexus Limited (DADA - Free Report) has an Earnings ESP of +28.00% and a Zacks Rank #3.

Dada Nexus’ bottom line for the to-be-reported quarter is expected to grow 37.5% from the prior-year quarter’s reported number.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.