What happened
Affirm Holdings (AFRM -5.73%) saw its stock price drop sharply on Friday. Shares of the buy now, pay later (BNPL) fintech were up 5% shortly after the bell, rising on yesterday's momentum and some decent bank earnings. But things turned south, and as of 3:25 p.m., the stock was down about 6.6% to $17.51.
So what
Some solid bank earnings gave the market a lift shortly after the opening bell; shares of JPMorgan Chase, Wells Fargo, Citigroup, and US Bancorp were all up on better-than-expected third-quarter earnings.
But that initial surge did an about-face following the release of some economic news that directly impacted Affirm, a payment stock. Most notably, September consumer spending was flat, according to the Commerce Department's retail sales report. This was below analysts' estimates for a 0.3% gain in retail sales and less than the 0.4% gain in August.
This is indicative of the impact of inflation on consumer spending. On Thursday, the September Consumer Price Index showed inflation rising 0.4% during the month.
Also, the University of Michigan released its monthly consumer sentiment survey, which showed that consumers' inflation expectations for the year ahead increased to 5.1%, after being at around 3% last month.
Now what
For Affirm investors, none of this news was comforting. A drop in consumer spending, along with an expectation for inflation to still be running high in the near term, are not good indicators for a company that relies on consumer spending to generate revenue.
Add to that the recent report from the Bureau of Labor Statistics that said the personal savings rate in August dropped to its lowest point since 2008. That means, in addition to higher prices, Americans have less disposable income to spend, which won't ease the pain for Affirm.
Affirm continues to grow revenue and add new customers, but it has not yet become profitable. The stock price is down 82% year to date to about $17 per share. This is a challenging economic environment for this company in a very competitive industry.
Watch out for Affirm's next quarterly earnings report on Nov. 9 for better visibility as it heads into the holiday season. Until then, it's probably best to watch and wait.
