Affirm’s various partnerships are driving growth in spending volume for buy-now-pay-later company, but analysts wonder about revenue impacts
Affirm Holdings Inc. shares plunged more than 20% Thursday after the buy-now pay-later company mistakenly posted earnings results early, then faced tough questions about how new partnerships were affecting revenue.
Affirm’s AFRM, -20.67% revenue for its fiscal second quarter rose to $361 million from $204 million, while analysts surveyed by FactSet had been looking for $329 million on average. Affirm’s forecast for the current quarter, however, called for higher-than-expected volume but lower-than-anticipated revenue, eliciting questions about the impact of new partner Amazon.com Inc.
The results indicated to at least one analyst that while the company’s new partnership with Amazon AMZN, -3.59% has been successful in driving additional volume for the company, it also may come with a lower “take rate,” which effectively refers to Affirm’s yield on each transaction.
The company’s gross revenue as a percentage of its volume declined to about 8% in the December quarter from roughly 10% in the September quarter, noted Mizuho analyst Dan Dolev.
“This is understandable given the likely lower Peloton PTON, -7.42% mix (which comes at a ~12% take rate) and significantly more Amazon in the mix, which comes at a much lower take rate,” he wrote in a note to clients.
Affirm’s gross merchandise volume, or the dollar value of transactions on its platform, jumped to $4.5 billion from $2.1 billion a year earlier, though the company noted that the metric doubled even without Amazon.
Chief Financial Officer Michael Linford alluded to the different financial profiles of Affirm’s various offerings when speaking on a conference call later Thursday, as its split-pay offerings bring more immediate revenue benefits relative to its interest-bearing ones.
“You’ve got a lot of growth in the split-pay offering with really high merchant fees and you have a lot of user growth that comes along with that,” he said.
In addition, the company has interest-bearing offerings, including what it recently rolled out on Amazon, that it expects will deliver financial benefits over time. The enterprise offerings “will drive tremendous processing volume, as well as, in the long run, we think really strong economics,” he continued.
With the interest-bearing offerings, Affirm can make money off its loans either by holding them to maturity or selling them to a third party, and when it holds the loans itself, it recognizes interest income over the duration of the loan.
“Hence, this quarter’s revenue reflects just a portion of the total yield we will ultimately see from the GMV we generated in Q2,” Linford continued.
As it relates to Amazon, Affirm is seeing delayed benefits because it runs interest-bearing offerings with the e-commerce giant, said Mizuho’s Dolev, but the Amazon arrangement might also have a naturally lower take rate.
The Amazon offering also helps expose Affirm to new potential customers thanks to the e-commerce giant’s ubiquitous platform, which may be why Affirm would be willing to accept a lower take rate.
Affirm shares closed down 21.4% in Thursday’s regular session following the report, which was issued shortly before 3 p.m. Eastern time, after the company tweeted out aspects of its financial results ahead of time and then deleted them. The shares had been up as much as 11.9% earlier Thursday after the first snippets came out, but they headed lower once Affirm put out its full release and outlook.
“Due to human error, a small portion of Affirm’s fiscal Q2 results were inadvertently tweeted from Affirm’s official Twitter account earlier today,” the company later tweeted. The company was scheduled to report results after Thursday’s closing bell.
The stock fell another 7.2% in after-hours trading Thursday, as the outlook became a hot topic of conversation on the call. Bank of America analyst Jason Kupferberg highlighted that while Affirm increased its full-year volume outlook by roughly $1.5 billion, it barely changed its outlook for revenue less transaction costs.
Affirm models $14.58 billion to $14.78 billion in gross merchandise volume for its current fiscal year, whereas its prior full year-outlook, issued back in November, called for $13.13 billion to $13.38 billion in GMV. The company now expects $585 million to $595 million in revenue less transaction costs, up at the low end from its prior outlook of $580 million to $595 million.
“I think this is a dynamic that’s kind of throwing people off a bit,” Kupferberg said on the call, while asking how much of those trends in Affirm’s guidance related to Amazon.
Linford replied that Amazon was “part of it,” along with other interest-bearing arrangements that have a lagging impact on revenue.
“The other obvious impact with respect to the revenue less transaction cost as a percentage of GMV is the mix towards split-pay again, as it does run lower,” he continued.
Over the longer term, Affirm has targeted revenue less transaction costs to be 3% to 4% of GMV, and the company is “operating at the higher end of the range,” he said.
“Not surprisingly, the success [of] Amazon on Affirm helps drive a significant increase in [fiscal-year] GMV,” Dolev wrote. “Nevertheless, investors should remember that the prior guide did not include the Amazon impact, so it is not apples to apples with the current guide.”
Despite the strong negative stock reaction Thursday, Dolev remained bullish on Affirm’s story.
“While the stock is in the penalty box today, we believe that the strong success of the Amazon partnership and elsewhere reaffirms Affirm’s stance as a viable alternative to credit,” he wrote.
Barclays analyst Ramsey El-Assal took a similar view.
“While the better outlook for GMV did not flow through to net revenue expectations and despite profitability seeming further out, we believe today’s sell-off seemed like an partial overreaction to a strong quarter for a company that is making good progress to expand its network,” he wrote.
The company reported a fiscal second-quarter net loss of $159.7 million, or 57 cents a share, compared with a loss of $26.6 million, or 38 cents a share, in the year-prior quarter.
Affirm posted an operating loss of $196.2 million, whereas it posted an operating loss of $26.8 million a year earlier. The metric includes an $82 million increase in stock-based compensation following Affirm’s January 2021 initial public offering. It also reflects investments in product, hiring and marketing, per the company’s release.
For the current quarter, Affirm expects gross merchandise volume of $3.61 billion to $3.71 billion, while analysts had been expecting $3.5 billion. The company also anticipates revenue of $325 million to $335 million, whereas the FactSet consensus was for $335.5 million.
The stock has tumbled 63% over the past three months, while the S&P 500 index SPX, -1.90% has slipped 3.9%.