Affirm stock soars 34% after earnings ‘end some lingering bearish themes’

Affirm stock soars 34% after earnings ‘end some lingering bearish themes’

Affirm stock soars 34% after earnings 'end some lingering bearish themes'

Shares of Affirm Holdings Inc. surged in after-hours trading on Thursday after the buy-it-now pay-later company reported better revenue and sought to reassure investors of its positioning in a time of recession. slow-down.

Turnover at Affirm AFRM,
rose to $354.8 million in the third fiscal quarter from $231 million a year earlier, when analysts had modeled $344 million.

Affirm processed $3.9 billion in gross merchandise volume (GMV) during the quarter, up 73% from the prior year. Analysts had expected $3.85 billion.

“Our strong performance demonstrates our ability to drive growth with an attractive unit economy, despite volatile market conditions,” Chief Financial Officer Michael Linford said in a statement.

Shares of Affirm rose 34% in aftermarket trading on Thursday, following a 23% gain in Thursday’s regular session.

“After a lot of anxiety, really good F3Q results should offer a big sigh of relief,” Mizuho’s Dan Dolev wrote in a note to clients.

Amid recent market turmoil, fintech names have been particularly hard hit, and shares of Affirm have fallen around 61% in the past three months, in part due to concerns over the fate of technology-focused companies. credit in a downturn.

Chief Executive Max Levchin appeared to address those fears during the company’s earnings call.

Because Affirm doesn’t charge late or renewal fees, “we have a structural incentive to decline a transaction that we think is a bad financial decision for you, because approving it is guaranteed to be a bad financial decision for us,” a he declared.

Levchin further referred to “the very short weighted average life” of Affirm’s loans, which he said was about five months. This means that “as the economic cycle changes, the loans we have made in the past will have a rapidly diminishing impact on Affirm’s future financial performance,” he continued.

Affirm expects people to be even more interested in the idea of ​​paying for items over time without incurring late fees during a downturn, but Levchin said that if the company intends ” to improve people’s lives”, it also aims “only to extend credit which we believe can and will be repaid.

Linford added that Affirm feels “really, really good” about where it stands in terms of capital commitments.

“We’ve seen the overall macro market change, so as rates change, it changes the spread, but the asset underneath, the asset we create, continues to be something that all of our financial partners understand and appreciate” , he said on the call.

Barclays analyst Ramsey El-Assal echoed some of Affirm’s funding comments in a note following the report.

“They cited having over $10.1 billion in funding capacity at the time of the call (May 12) and recently received a AAA rating for some of the securitized debt,” he wrote. Although El-Assal noted that Affirm recognizes that rising interest rates could ultimately affect its cost of funding, he pointed to management’s assertion that “it is a mistake to think about this as a full transfer on a linear basis”.

Affirming “putting some lingering bear themes to bed,” El-Assal said in summary.

For the June quarter, Affirm expects GMV of $3.95-4.05 billion, while analysts expected $3.97 billion. The company also forecast revenue of $345 million to $355 million for the June quarter, compared to the FactSet consensus of $352 million.

Levchin added on the call that Affirm’s “plan is to achieve a sustained rate of return on an adjusted basis by the end of the next fiscal year.”

The company’s discussion of longer-term goals beyond the current quarter seems to be a good fit on Wall Street, El-Assal suggested.

“It is important to note that management has indicated that the company will break even by July 2023, which is earlier than investors anticipated in our view, and also stated that it will not be necessary to issue shares before the company breaks even. he wrote in his note to clients.

In the most recent quarter, the company reported a net loss of $54.7 million, or 19 cents per share, compared to a loss of $287 million, or $1.23 per share, in the reporting period. the previous year. Analysts tracked by FactSet had expected a loss of 46 cents per share.

The company further shared in its earnings post that it achieved a multi-year expansion of its Shopify Inc. store,
partnership, which means Affirm will be the exclusive provider of “pay-over-time” technology for the company’s US Shop Pay Installments product.

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