Affirm stock Inc. shares fell over 20% on Thursday following the buy-now, pay-later company mistook announced earnings results in the early hours, only to be confronted with tricky questions regarding how the new partnerships affected revenues.
Affirm stock AFRM -21.42 per cent revenue for the fiscal second quarter jumped to $361 million, up from $204 million according to analysts polled by FactSet had expected $329 million in the average.
However, affirm’s forecast for the current quarter called for higher-than-expected volume but lower-than-anticipated revenue, eliciting questions about the impact of new partner Amazon.com Inc.
The results suggested to at the very least one analyst that although the new partnership between Affirm and Amazon AMZN, -1.36% has proven successful in generating more volume for the company, however, it may also be accompanied by less of a “take a percentage,” which effectively refers to the Affirm’s yield per transaction.
According to Mizuho Analyst Dan Dolev:
The company’s gross profit as a proportion of its volume decreased to around 8 per cent in the December quarter, down from approximately 10% in September quarter.
It is understandable considering the possibility of a lower Peloton PTON, -3.38% mix (which is a 12 per cent taking rate) and substantially greater Amazon mixed in, and comes with a softer take rate,” He wrote in a letter to customers.
The gross merchandise volume of Affirm (or the value in dollars) of transactions made on its platform increased to $4.5 billion, up from $2.1 billion in the previous year. The company did note that the figure doubled without Amazon.
Chief Financial Officer Michael Linford alluded to the various financial profiles of the multiple offerings offered by Affirm during the conference call later that day if its split-pay offerings provide more immediate revenue gains than the interest-bearing offerings.
You’ve seen lots of growth in the split-pay service, but with hefty merchant fees and lots of change for users, which is a result of that.
Furthermore, it has an interest-bearing offering, like what it just launched on Amazon, which it believes in yielding financial gains in the future. The offerings for enterprises “will generate massive processing volume in addition to in the end we think they’ll have excellent economics.
Affirm can make money from its loans by the loan until maturity or by selling them to a third party with interest-bearing offers. If it manages the loans, it can recognize interest income for the life of the loan.
“Hence that this quarter’s revenue is only a small portion of the yield we’ll ultimately get from the GMV we made in Q2.” Linford continued.
Concerning Amazon, Affirm sees delays in its benefits because it has interest-paying offerings in conjunction with the online giant, as stated by Mizuho’s Dolev; however, the Amazon arrangement could also result in naturally lower-taking rates.
The Amazon offer also opens Affirm to new customers, thanks to the online giant’s widespread platform. It could be one reason why Affirm is willing to settle for lower rates for take-home.
Affirm shares fell 21.4 per cent during Thursday’s regular session following the announcement released just before three p.m. Eastern time, following the company’s tweets that announced certain aspects related to its results before time. It then deleted the tweets. The shares were in the range of 11.9 per cent before Thursday’s announcement when the first glimpses of information were released. However, they slid lower when Affirm issued its full report and outlook.
“Due due to human errors, a tiny part of Affirm’s fiscal Q2 results was accidentally posted on the official account on Twitter earlier in the day,” the company later tweeted. Affirm was expected to release its results following Thursday’s closing bell.
The stock fell an additional 7.2 per cent after-hours trading Thursday when the outlook was a significant subject of discussion during the call. Bank of America analyst Jason Kupferberg pointed out that although Affirm has increased its volume forecast for the entire year by about $1.5 million, the company only changed its outlook on revenue about the cost of transactions.
It affirmed forecasts of $14.58 billion to $14.78 billion in gross merchandise volume for the current fiscal year. However, its previous full-year outlook released in November predicted $13.13 billion to $13.38 billion in GMV. The company is now expecting 585-$595million of fewer transaction costs up in the lower range from its previous outlook that ranged from $580 to $595 million.
Kupferberg said: I believe this is a situation that’s frightening people slightly, on the call, and asked what percentage of the trends in the Affirm’s forecasts is related to Amazon.
Linford said: Amazon could be part of it, as were other interest-bearing arrangements which can harm revenues.
The most apparent effect on the cost of transaction less revenue as proportional to GMV is the spread towards split-pay, which is lower than the other mix.
In the long term, Affirm has targeted revenue without transaction costs of between 3% and 4% of GMV. The firm has been “operating at the upper portion of the spectrum.
Dolev said: Not surprising, the growth of Amazon on Affirm is a significant factor in driving a rise in fiscal year GMV. Nevertheless, investors should be aware that the previous guide didn’t include the Amazon impact, and therefore, it isn’t apples-to-apples with the new direction.
Despite the strong adverse reaction to the stock market on Thursday, Dolev was still bullish about Affirm’s report.
While this stock may be currently in the penalty box at present, however, we believe that the growth from Affirm’s Amazon partnership and other partnerships affirms the Affirm stance as an option to take advantage of the credit.
Barclays Analyst Ramsey El-Assal took a similar perspective.
While the improved prospects for GMV didn’t translate to expectations for net revenue and with profitability appearing to be farther out, we believe that today’s selling off seemed to be a reaction to a reasonable period for a company that is making steady progress in expanding its networks.
The company posted its fiscal second-quarter total loss of $159.7 million (57 cents) a share. It compares to an operating deficit of $26.6 million which is 38 cents per share, in the prior-year quarter.
Affirm has reported the operating results in the amount of $196.2 million, while it had revenues of $26.8 million in the previous year. The figure includes an increase of $82 million in compensation for the stock-based stock after Affirm’s Jan. 2021 public offering. The metric also incorporates the company’s investments in hiring, product and marketing, according to the company’s release.
Affirm anticipates gross merchandise volume at $3.61 billion to $3.71 billion in the current quarter, whereas analysts had expected $3.5 billion. Affirm also hopes for a $325 million- $335 million revenue range. The Fact Set consensus was $335.5 million.
The stock has plunged 63% over the last three months, and its S&P 500 index SPX, -1.81 per cent, has dropped 3.9 per cent.
Important Note: This replaces an earlier article that incorrectly reported the second quarter’s revenue compared to analyst expectations. The error has been rectified.
Source: Google Trend
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