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Affirm Holdings Inc Cl A(AFRM-Q)

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These 2 Stocks Are on the Comeback Trail

Motley Fool - Thu Nov 9, 2023

2022 was a tough year for the stock market. Even though broader market indexes have risen in 2023, plenty of companies are still struggling to get their share prices back to where they were during the bull market in 2021. In particular, smaller companies haven't been as quick to rebound in every case as some of their larger-company counterparts.

However, a pair of stocks gave investors good news in their most recent quarterly financial reports, and those favorable results have both stocks moving sharply higher early Thursday. Below, you'll get a look at the latest financials from Affirm Holdings (NASDAQ: AFRM) and PubMatic (NASDAQ: PUBM), and you'll then understand better why the two stocks are gaining ground.

Affirm keeps weathering the macroeconomic storm

Shares of Affirm Holdings were up 12% early Thursday. The provider of buy now, pay later (BNPL) purchase financing services reported fiscal first-quarter financial results for the period ended Sept. 30 that showed its ability to deal with the pressures of high interest rates.

Many of Affirm's numbers looked solid. Gross merchandise volume was up 28% year over year to $5.6 billion, with transaction counts rising by 5.5 billion to 18.8 billion. That produced total revenue of $497 million, up 37% from the same period a year ago. Affirm now has 16.9 million active customers and 266,300 active merchants in its ecosystem. Affirm is still losing money by most measures, but the company was pleased to see adjusted operating income turn positive for the period.

Affirm highlighted some key areas of success. Travel and ticketing has been a big driver of BNPL activity, helping to offset weakness in home furnishings. The company pointed to its partnership with Shopify as adoption of the Affirm-powered Shop Pay Installments service rose. In addition, even with interest rates high, Affirm has found a business model that can produce favorable results and obtain needed capital at reasonable costs.

So far, consumers haven't really pulled back markedly on their overall spending, and if that were to happen in a full-blown recession, Affirm would likely see more pressure on gross merchandise volume and revenue. For now, though, Affirm seems to have found a viable path forward, and investors like what they're seeing.

PubMatic gets back on track

Elsewhere, shares of PubMatic jumped more than 20% on Thursday morning. The programmatic advertising company's third-quarter financial results might have marked a turning point in its efforts to gain traction in the industry.

PubMatic's key business metrics weren't all that strong. Revenue eased lower by 1% to $63.7 million, and adjusted net income was down 38% year over year to $7.6 million. That produced adjusted earnings of $0.14 per share, down by a third from year-ago levels, and net dollar-based retention rates of 97% suggested that existing subscribers spent less on the platform than they did in the year-ago period.

However, PubMatic's strategy did yield some successes. Multiyear strategic partnerships with top ad agencies and advertisers helped deliver 33% more ad impressions during the quarter, as PubMatic diversified its exposure across over 20 different vertical distribution channels. Active publishers on the PubMatic platform were up 11% year over year.

PubMatic's outlook was cautious, but it's pleased to see free cash flow at its best levels in almost two years. If that trajectory continues, then PubMatic stock could have a long way to run higher.

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Dan Caplinger has positions in Shopify. The Motley Fool has positions in and recommends PubMatic and Shopify. The Motley Fool has a disclosure policy.

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