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Fintech companies are experiencing a decline in their recent stock market rally.
Shares of several consumer-oriented fintech firms, including Affirm, Toast, Bill.com, and PayPal, saw a drop on Thursday following a significant increase the day before. This downturn occurred after President Donald Trump revealed a 90-day freeze on proposed increases to import tariffs.
Despite the administration’s actions to raise tariffs on Chinese imports to 125%, many in the markets interpreted the temporary delay as a potential reduction in the U.S. government’s aggressive trade posture. However, fintech firms continue to face significant long-term challenges such as increasing hardware expenditures, exposure to credit risks in the small business sector, and overall economic uncertainty.
Affirm was at the forefront of the Wednesday market rally, seeing its shares rise almost 22%, recovering from considerable losses earlier in the week. The initial tariff announcements had negatively impacted growth stocks, leading to fears of reduced consumer spending. The subsequent tariff pause, combined with a positive report from an analyst, changed the sentiment surrounding the stock.
On the eve of the market rebound, Evercore ISI analyst Adam Frisch began coverage of Affirm, giving it an “Outperform” rating with a price target of $50, while its shares were trading around $37. By the end of Wednesday, Affirm’s shares closed at $44.
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The analysts’ confidence stemmed from a belief that Affirm, unlike its competitors, has robust risk management practices. Frisch noted that this positions Affirm favorably to expand its customer base in a growing market through continuous product innovation.
Concerns have been raised by Goldman Sachs analysts over the possible negative effects of higher import duties on businesses that depend on imported checkout terminals and other merchant infrastructure. They suggest that these impacts could be more severe than those observed during the 2019 tariff implementations.
Furthermore, firms like Bill.com, which supply working capital to merchants, may find themselves vulnerable to shifts in lending conditions, particularly as borrowing costs rise and demand wanes. While the tariff freeze offers immediate respite, the strategic pressures remain intact.
Analysts from Evercore contend that the prevailing economic weakness could inadvertently benefit Affirm as traditional lenders become less willing to extend credit. They suggest that a reduction in access to conventional credit systems might position Affirm as a viable alternative, especially given the approximately 60% selloff that has left the stock trading at lower multiples than in previous periods.
Additionally, Evercore expressed optimism regarding the Affirm Card, which is utilized for both online and in-person transactions, viewing it as a strategic asset in promoting growth in physical retail. As more consumers rely on the card for everyday purchases, Affirm can harness valuable insights into consumer spending patterns, enhancing its risk assessment capabilities and product offerings. The gross merchandise volume (GMV) for the Affirm Card reportedly more than doubled to $845 million by December.
Yet, the recent rally appears tenuous. Although the 90-day tariff suspension offers a breathing space, it does not eliminate the risk of future tariffs. There are ongoing pressures from margins, interest rate fluctuations, and geopolitical tensions that persistently challenge fintech companies, which have already faced a tumultuous year.
WATCH: Affirm CEO discusses the company’s role as an alternative to credit cards, not debit cards.
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