Affirm Holdings Inc (NASDAQ:AFRM) stock fell 0.47% (As on July 7, 11:17:28 AM UTC-4, Source: Google Finance) after Piper Sandler downgraded the company to Underweight from Neutral with a price target of $11.00. The company relies heavily on loan sales for revenue, but higher rates and wider credit spreads have led them to hold more loans on their balance sheet, which also pressures operating margins.

Furthermore, stricter underwriting standards, increased pricing, and the reintroduction of student debt payments are expected to slow down revenue growth. As a result, Piper Sandler believes it will be challenging for the company to achieve the Street estimate of 24% revenue growth for 2024. According to Piper Sandler, revenue growth has decelerated to 11% and 7% in the past two quarters.

Meanwhile, GMV grew 18% year-over-year to $4.6 billion, or 24% excluding Peloton, which was one of our largest merchant partners on a GMV basis in the prior-year period. Revenue grew 7% year-over-year, or 15% excluding Peloton, to $381 million. Revenue as a percentage of GMV declined year-over-year to 8.2% due to an ongoing mix shift towards interest-bearing and Pay in 4 products and away from 0% APR monthly installment products. In light of volatile funding market conditions, we made greater use of warehouse funding facilities this quarter than in prior quarters, resulting in lower gain on sales of loans. Adjusted Operating Income (Loss) was $(6) million, compared to $4 million during FQ3’22. Adjusted Operating Income (Loss) as a percentage of Revenue, or Adjusted Operating Margin, was (2)% in the period compared to 1% during FQ3’22. Active merchant count grew 19% year-over-year to 246,000 merchants overall, and merchants with >$1,000 in trailing-twelve-month GMV grew 29% year-over-year to 92,000. Merchants with >$1,000 in trailing-twelve-month GMV accounted for more than 99% of total GMV in FQ3’23.

Furthermore, the Funding Capacity increased to $11.4 billion at the end of March, up from $10.5 billion at the end of December. This increase was driven by the $500 million 2023-A ABS offering that the company had closed in January, as well as the addition of $250 million in warehouse capacity with a new partner in March. During April, the company had also closed a $400 million expansion of the 2023-A ABS offering. Due to strong investor demand, the company had upsized the expansion from an original size of $250 million. The transaction was more than 3x oversubscribed at pricing with $1.3 billion in total orders.