Affirm stock soars 34% after earnings ‘put to bed some persistent bear themes’

Shares of Affirm Holdings Inc. rose in after-hours trading Thursday after the company that buys now, pays later saw higher sales and tried to reassure investors about its positioning in a downturn.

Revenue at Affirm AFRM,
+23.31%
rose to $354.8 million in the fiscal third quarter from $231 million a year earlier, as analysts had modeled $344 million.

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

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

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

“After much fear, very strong F3Q results should bring a big sigh of relief,” Mizuho’s Dan Dolev wrote in a note to customers.

Amid recent market turmoil, fintech names have been hit particularly hard, with Affirm shares falling about 61% in the past three months, partly due to concerns about the fate of credit-oriented companies in a downturn.

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

Since Affirm doesn’t charge late or ongoing 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.” he said.

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

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

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

“We’ve seen the overall macro market change, so the price changes, it changes the allocation, but the underlying asset, the asset that we create, remains something that all of our capital partners understand and value,” he said on the website’s phone call.

Barclays analyst Ramsey El-Assal addressed some of Affirm’s financing commentary in a note following the report.

“They said they had more than $10.1 billion in financing capacity at the time of the call (May 12) and recently received an AAA rating on some of the securitized debt,” he wrote. While El-Assal noted that Affirm acknowledged that rising interest rates could eventually feed into borrowing costs, he emphasized management’s claim that “it’s a mistake to see that as a full flow on a straight-line basis.”

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

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

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

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

Importantly, management indicated that the company would reach break-even profitability by July 2023, which is earlier than investors expected, we believe, and also said it will not be necessary to issue equity before the company breaks. – even achieved profitability,” he wrote in his letter to customers.

In the most recent quarter, the company posted 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 same period a year earlier. Analysts tracked by FactSet were expecting a loss of 46 cents a share.

The company further shared in its earnings release that it has completed a multi-year extension of its Shopify Inc. SHOP reached,
+10.96%
partnership, meaning Affirm will be the exclusive supplier of pay-over-time technology for the company’s US Shop Pay payment product.

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