Affirm's upbeat earnings reflect differentiated buy-now-pay-later approach

By Emily Bary

CFO says recent success is helped by Affirm's ability to serve different transaction types, including large purchases

Shares of Affirm Holdings Inc. opened higher Wednesday after the buy-now-pay-later company issued upbeat results and guidance, though the stock's momentum reversed minutes after the opening bell.

Before Wednesday trades, Affirm (AFRM) said it expects June-quarter revenue of $585 million to $605 million, above the FactSet consensus view of $579 million.

For the latest quarter, Affirm's fiscal third, the company saw a 51% boost in revenue to $576 million, whereas analysts had been modeling $550 million. Revenue less transaction costs was $231 million, up 38%.

Affirm saw $6.3 billion in gross merchandise volume, up 36% from a year before. That marked the fourth consecutive quarter of growth in that metric.

These growth rates are "really inherent and core to the network that we've built, serving more consumers and more merchants as opposed to flash-in-the-pan type proof that you might see in other asset classes where there's lots of attention on something that goes away," Chief Financial Officer Michael Linford told MarketWatch. "And we did that with really strong unit economics."

"Credit performance was stable and yield outperformed our expectations, which we see as an opportunity to modestly increase risk exposure by offering credit to more consumers, but as always, we remain firmly in control of credit outcomes," Chief Executive Max Levchin said in a shareholder letter.

Meanwhile, funding capability was up "slightly" on a sequential basis, he commented.

Linford sees Affirm as differentiated in the buy-now-pay-later market thanks to its credit-management capabilities that allow it to facilitate different transaction needs effectively.

For example, while the company lets people split purchases into four installments that get paid back over a short span, Affirm also has options for people looking to make larger purchases. Consumers looking to buy a $1,000 item might not see much value in splitting that up over four interest-free $250 chunks paid back over a matter of weeks, or they might not be able to fit that sort of payment program into their cash-management plans either.

"We have the ability to address that transaction type in a much wider set in our competitors," Linford said. The company has interest-bearing options for longer payback periods that are an alternative to revolving credit.

"We believe that we are the real attack vector for credit cards, and that credit cards are the old way of paying," he said.

Affirm logged a net loss of $133.9 million, or 43 cents a share, compared with a loss of $205.7 million, or 69 cents a share, in the year-prior quarter. Analysts were modeling a 70-cent per-share loss.

Levchin noted that just after the fiscal third quarter ended, Affirm passed the 1 million mark for active cardholders of its Affirm Card, which lets consumers split purchases into installments before or after making them.

Notably, card spend per user is up a bit even as the base of cardholders grows, Linford noted.

"You're not seeing a deterioration in engagement, which is what you would usually see as products scale," he said. "You'd expect them to be slightly less resonant as you scale. Our product is slightly more resonant, which is a really good indication, we think, of the fit of the product."

-Emily Bary

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05-08-24 0957ET

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