Short Selling

Short Selling Report: Affirm Holdings Inc (AFRM:US)

A few notes are placed on a pink background with a mobile phone displaying the Affirm Holdings Inc. app.
Affirm Holdings Inc
(AFRM:US)
12 months:
-60.48%
Activity:
Bearish
Pattern:
Rising short interest
News:
Price target lowered by Jefferies
Affirm Holdings Inc
(AFRM:US)
12 months:
-60.48%
Activity:
Bearish
Pattern:
Rising short interest
News:
Price target lowered by Jefferies

Short selling data can help active investors avoid large losses. Short sellers tend to be sophisticated, high-conviction traders. If they’re shorting a stock, there’s often significant risk to the downside.

In this report, we are going to look at the short selling data on Affirm Holdings Inc (AFRM:US). Affirm is an American FinTech company that specializes in Buy Now Pay Later (BNPL) technology. Its payments technology, which is offered by around 170,000 merchants worldwide, is currently used by around 11 million consumers. The company is listed on the Nasdaq Global Select Market and currently has a market capitalization of $8.58 billion.

Affirm Holdings Inc: Short Selling Data

Looking at the short selling data on Affirm, we see two major red flags.

The first is that short interest is high. At present, 28.8 million Affirm shares are on loan. That represents approximately 18% of the company’s free float.

The second is that interest from short sellers has increased substantially in recent months. Back at the start of February, only 7.0 million shares were on loan and utilization – a measure of demand on the short side – was just 6.1%. However, since then, the number of shares on loan has risen by 312% and utilization has increased to 26.8%. This indicates that short sellers are aggressively ramping up their downside bets here.

Why Are Short Sellers Targeting Affirm Holdings?

As for why the short sellers are targeting Affirm, it could be down to the fact that economic conditions are deteriorating, and the chances of a recession are increasing. If more consumers struggle to pay their debts, default rates will rise, leaving BNPL players with larger credit losses. It’s worth noting that Australian BNPL company Zip (which we covered on the short side last year here) recently reported an increase in credit losses in the first quarter of 2022 and said that losses were outside of its target range. Meanwhile, analysts at Jefferies just lowered their price target on Affirm from $35 to $28 due to concerns about consumer health.

Alternatively, it could be down to the fact that the company is not yet profitable. For 2022, Wall Street analysts expect the group to generate a net loss of $761 million. Yet the company has a market cap of nearly $10 billion. Unprofitable companies that trade at high valuations are very much out of favor in the current environment.

Whatever it is the short sellers see in relation to Affirm, we think caution is warranted towards the stock right now. In our view, the rising short interest here is a bearish indicator.

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