The recent fiscal second-quarter results from Affirm Holdings, a key player in the buy now, pay later (BNPL) sector, have sparked renewed interest and excitement in the market. Following the company’s robust earnings report, Affirm’s shares surged by over 15% in after-hours trading, signaling significant investor confidence. The company’s performance not only surpassed analysts’ expectations across several key metrics but also highlighted the potential for continued growth in a competitive landscape.
Affirm reported an Earnings Per Share (EPS) of 23 cents, which—against a backdrop of a projected loss of 15 cents—demonstrates a compelling turnaround for the company. Revenue during the quarter reached $866 million, outpacing forecasts set at $807 million. Such notable results reflect a 47% year-over-year increase from last year’s revenue of $591 million.
One of the standout metrics reported was the gross merchandise volume (GMV), which hit $10.1 billion, comfortably nudging past the consensus estimate of $9.64 billion. This marked the first time GMV exceeded the $10 billion threshold and indicated a 35% increase compared to the previous year. The growth seen here, particularly when revenue outpaced GMV, is an excellent indication of strong unit economics—a crucial factor for sustaining profitability in the long term.
Moreover, Affirm’s revenue less transaction costs (RLTC) climbed by 73% to $419 million, with a RLTC margin of 4.1% exceeding the company’s long-term expectations of 3% to 4%. This enhancement in margins is indicative of efficient cost management coupled with rising sales, making a strong case for the health of Affirm’s operational capabilities.
Key Drivers of Growth and Strategic Partnerships
Rob O’Hare, Affirm’s Chief Financial Officer, credited a significant portion of the earning boost to a $60 million gain from a prior conversion of debt, showcasing the company’s proactive approach to financial management. Nonetheless, O’Hare asserted that the fundamental business operations primarily drove these growth figures. This positive angle is further backed by Affirm’s solid partnership strategy with major corporations like Apple, Amazon, and Shopify.
Effective collaborations have become an essential component of Affirm’s growth strategy. The partnership with Apple, particularly, stands out, as it allows U.S. Apple Pay users to access Affirm’s services directly via their devices, potentially expanding the consumer base and increasing transaction volumes. Such integrations not only enhance user experience but also extend the reach of Affirm’s services to users who might not be aware of alternative financing options available to them.
Looking ahead, Affirm remains optimistic, projecting revenue between $755 million and $785 million for the upcoming quarter, slightly lower than analysts’ average estimate of $772 million. However, the company’s commitment to achieving profitability on a Generally Accepted Accounting Principles (GAAP) basis by the end of fiscal year 2025 lends credence to a long-term vision, even amidst short-term fluctuations.
Affirm has also seen a significant increase in its active consumer base, which grew by 23% year-over-year to 21 million users. The debut of the Affirm Card has proved beneficial as well, achieving a remarkable 136% rise in active users, totaling 1.7 million. The doubling of card volume illustrates substantial consumer engagement, which is vital for sustaining market presence and competitiveness.
Furthermore, the quarter also showcased an increase in zero-percent interest loans, a tactic employed by merchants to stimulate sales. This approach resonates with the broader retail strategy, where promotional offers can attract more consumers, especially during crucial sales periods. As Libor Michalek, Affirm’s president, noted during the earnings call, such strategies exemplify how the company and its partners adapt to market demands, continuously seeking avenues to bolster growth.
Affirm’s fiscal second-quarter performance underscores a compelling narrative of growth and resilience in the BNPL sector. As the company navigates through a time of economic flux, its innovative strategies and robust partnerships position it well for future success. With solid numbers reflected in revenue growth, consumer engagement, and strategic foresight, Affirm appears poised for sustained growth, building a promising outlook for both the business and its investors in the months and years ahead.
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