Affirm Holdings, Inc. (AFRM) on Q3 2023 Results - Earnings Call Transcript
Operator: Good afternoon. Welcome to Affirm Holdings Third Quarter 2023 Earnings Conference Call. Following the speakers' remarks, we will open the lines for your questions. As a reminder, this conference call is being recorded, and a replay of the call will be available on our Investor Relations website for a reasonable period of time after the call. I'd now like to turn the call over to Zane Keller, Director, Investor Relations. Thank you. You may begin. Zane Keller: Thank you, operator. Before we begin, I would like to remind everyone listening that today's call may contain forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including those set forth in our filings with the SEC, which are available on our Investor Relations website. Actual results may differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of today, and the company does not assume any obligation or intent to update them, except as required by law. In addition, today's call may include non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures. For historical non-GAAP financial measures, reconciliations to the most directly comparable GAAP measures can be found in our earnings supplement slide deck, which is available on our Investor Relations website. Hosting today's call with me are Max Levchin, Affirm's Founder and Chief Executive Officer; and Michael Linford, Affirm's Chief Financial Officer. In line with our practice with prior quarters, we will begin with brief opening remarks from Max before proceeding immediately into questions and answers. On that note, I will turn the call over to Max to begin. Max Levchin: Thank you, Zane. Thanks everyone for joining, and I hope you had a chance to read our quarterly letter as it packs lots of great information, but I will offer a very quick summary for you. We had an excellent quarter, beat across all of the important metrics we track, while continuing to maintain excellent credit results. On the execution side of things, I'm really proud of how the team performed this quarter. We shipped well over 100 projects from pricing to new credit model to dozens of user interface improvements. In isolation, each of these wins is probably relatively small, but they compounded to huge gains. One major project this quarter was our continued effort in rolling out Debit+. We delivered Debit+ into the main Affirm app, and while it's still quite early, we continue seeing strong signal to consumer demand. Debit+ user transaction frequency after 90 days from activation is about 7x that of a regular Affirm user. I'm truly excited about this product and what the team has planned for it and we intend to give you a significantly more fulsome update on Debit+ in the quarters to come. Seems that there is a once in a century event that happens every week lately, rattling capital markets, but we continue to deliver great returns for our capital market partners and it was rewarded by an incremental addition to our funding capacity in the quarter, as well as in April after we closed. So, in short, we had a great quarter, we compounded many small wins into big gains. We're very excited about Debit+ and the overall outlook for Affirm as a company. Back to you, Zane. Zane Keller: Great. Thank you, Max. With that, we will now begin our question-and-answer session. Operator, please open the line for our first question. Operator: Thank you. [Operator Instructions] Our first question comes from the line of Moshe Orenbuch with Credit Suisse. Please proceed. Operator: Our next question comes from the line of Bryan Keane with Deutsche Bank. Please proceed. Operator: Our next question comes from the line of Ramsey El-Assal with Barclays. Please proceed. Operator: Our next question comes from the line of Jason Kupferberg with Bank of America. Please proceed. Operator: Jason, you're back in. Operator: I think we can hear you now. Try asking again. Operator: Yes. Operator: Our next question comes from the line of Andrew Jeffrey with Truist Securities. Please proceed. Operator: Our next question comes from the line of Eugene Simuni with MoffettNathanson. Please proceed. Operator: Our next question comes from the line of Rayna Kumar with UBS. Please proceed. Operator: Our next question comes from the line of Dan Dolev with Mizuho. Please proceed. Operator: Our next question comes from the line of James Faucette with Morgan Stanley. Please proceed. Operator: [Operator Instructions] And our next question comes from the line of Rob Wildhack with Autonomous Research. Please proceed. Operator: Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the call back to Zane Keller. Zane Keller: Well, thank you, everybody, for joining the call today, and we look forward to speaking with you again next quarter. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Affirm Holdings, Inc. (NASDAQ:AFRM) Struggles with Capital Efficiency Compared to Peers
Affirm Holdings, Inc. (NASDAQ:AFRM) is a leading financial technology company that offers innovative buy now, pay later (BNPL) services. It enables consumers to make purchases and spread the cost over time without incurring hidden fees. Affirm is in direct competition with other fintech entities such as Upstart Holdings, Inc. (UPST), SoFi Technologies, Inc. (SOFI), and traditional financial institutions.
Affirm's Return on Invested Capital (ROIC) is -3.09%, which is significantly lower than its Weighted Average Cost of Capital (WACC) of 16.38%. This negative ROIC indicates that Affirm is not generating sufficient returns to cover its cost of capital, posing a potential concern for investors. The ROIC to WACC ratio of -0.19 further underscores this inefficiency.
In comparison, Upstart Holdings has an even lower ROIC of -17.03% against a WACC of 12.10%, resulting in a ROIC to WACC ratio of -1.41. This suggests that Upstart is also facing challenges in generating returns that surpass its cost of capital. Similarly, SoFi Technologies has a ROIC of -0.17% and a WACC of 16.19%, with a ROIC to WACC ratio of -0.01, indicating slight underperformance.
Roblox Corporation and Snowflake Inc. also exhibit negative ROICs of -30.41% and -25.32%, respectively, with WACCs of 10.74% and 8.82%. Their ROIC to WACC ratios of -2.83 and -2.87 reflect significant inefficiencies in capital utilization. However, Robinhood Markets, Inc. stands out with a positive ROIC of 9.01% and a WACC of 12.43%, resulting in a ROIC to WACC ratio of 0.72
Affirm Holdings, Inc. (NASDAQ:AFRM) Financial Analysis
- Affirm Holdings, Inc. (NASDAQ:AFRM) has a Return on Invested Capital (ROIC) of -3.09%, indicating it is not generating sufficient returns to cover its cost of capital.
- Comparatively, Upstart Holdings, Inc. (NASDAQ:UPST) and SoFi Technologies, Inc. (NASDAQ:SOFI) also struggle with ROIC below their WACC, similar to Affirm.
- In contrast, Robinhood Markets, Inc. (NASDAQ:HOOD) showcases a positive ROIC of 9.01%, outperforming its peers by generating returns above its cost of capital.
Affirm Holdings, Inc. (NASDAQ:AFRM), a leading financial technology company, offers innovative buy now, pay later (BNPL) services. This allows consumers to make purchases and pay for them over time without incurring hidden fees. Affirm competes with other fintech companies such as Upstart Holdings, Inc. (NASDAQ:UPST), SoFi Technologies, Inc. (NASDAQ:SOFI), and traditional financial institutions.
In analyzing Affirm's financial performance, its Return on Invested Capital (ROIC) is -3.09%, which is significantly lower than its Weighted Average Cost of Capital (WACC) of 17.66%. This negative ROIC indicates that Affirm is not generating enough returns to cover its cost of capital, which is a concern for investors.
Comparing Affirm to its peers, Upstart Holdings has a ROIC of -19.91% and a WACC of 12.94%, resulting in a ROIC to WACC ratio of -1.538. This suggests that Upstart is also struggling to generate returns that meet its cost of capital, similar to Affirm.
SoFi Technologies, with a ROIC of -0.17% and a WACC of 15.96%, has a ROIC to WACC ratio of -0.011. Although SoFi's ROIC is closer to its WACC compared to Affirm, it still falls short of covering its cost of capital.
In contrast, Robinhood Markets, Inc. (NASDAQ:HOOD) stands out with a positive ROIC of 9.01% against a WACC of 12.87%, resulting in a ROIC to WACC ratio of 0.700. This indicates that Robinhood is effectively generating returns above its cost of capital, unlike Affirm and most of its peers.
Affirm Holdings, Inc. (NASDAQ:AFRM) Financial Performance and Comparison with Fintech Peers
Affirm Holdings, Inc. (NASDAQ:AFRM) is a financial technology company that provides installment loans to consumers at the point of sale. It aims to offer a transparent and flexible alternative to traditional credit. Affirm competes with other fintech companies like Upstart Holdings, Inc. (UPST) and SoFi Technologies, Inc. (SOFI), as well as broader financial service platforms like Robinhood Markets, Inc. (HOOD) and Snowflake Inc. (SNOW).
In evaluating Affirm's financial performance, the Return on Invested Capital (ROIC) is a critical metric. Affirm's ROIC is -3.09%, which is significantly lower than its Weighted Average Cost of Capital (WACC) of 18.18%. This negative ROIC indicates that Affirm is not generating enough returns to cover its cost of capital, which is a concern for investors.
Comparing Affirm to its peers, Upstart Holdings has an even lower ROIC of -16.81% against a WACC of 14.98%, resulting in a ROIC to WACC ratio of -1.12. SoFi Technologies, on the other hand, has a ROIC of -0.17% and a WACC of 15.75%, leading to a slightly better ROIC to WACC ratio of -0.01. Both companies, like Affirm, are struggling to generate returns above their cost of capital.
Roblox Corporation and Snowflake Inc. also show negative ROICs of -30.41% and -24.13%, respectively, with WACCs of 11.00% and 9.37%. Their ROIC to WACC ratios are -2.76 and -2.58, indicating significant challenges in capital efficiency. However, Robinhood Markets stands out with a positive ROIC of 17.33% and a WACC of 12.86%, resulting in a ROIC to WACC ratio of 1.35, highlighting its effective capital utilization.
In summary, while Affirm and most of its peers are not covering their cost of capital, Robinhood Markets is an exception. Robinhood's ability to generate returns that exceed its cost of capital makes it a standout in terms of capital efficiency among these companies.
Affirm Holdings, Inc. (NASDAQ:AFRM) Financial Performance and Comparison with Fintech Peers
- Affirm's Return on Invested Capital (ROIC) is -3.09%, indicating it is not generating sufficient returns to cover its cost of capital.
- Competitors like Upstart Holdings, Inc. (UPST) and SoFi Technologies, Inc. (SOFI) also show negative ROIC, highlighting a common challenge in the fintech sector.
- Robinhood Markets, Inc. (HOOD) stands out with a positive ROIC of 7.38%, demonstrating effective capital utilization.
Affirm Holdings, Inc. (NASDAQ:AFRM) is a financial technology company that offers buy now, pay later (BNPL) services. It allows consumers to make purchases and pay for them over time with no hidden fees. Affirm competes with other fintech companies like Upstart Holdings, Inc. (UPST), SoFi Technologies, Inc. (SOFI), and traditional financial institutions.
In evaluating Affirm's financial performance, the Return on Invested Capital (ROIC) is a critical metric. Affirm's ROIC is -3.09%, which is significantly lower than its Weighted Average Cost of Capital (WACC) of 17.28%. This negative ROIC indicates that Affirm is not generating enough returns to cover its cost of capital, which is a concern for investors.
When comparing Affirm to its peers, Upstart Holdings has a ROIC of -20.60% and a WACC of 11.89%, resulting in a ROIC to WACC ratio of -1.73. SoFi Technologies, with a ROIC of -0.93% and a WACC of 12.46%, has a ratio of -0.07. Both companies, like Affirm, are not covering their cost of capital.
Roblox Corporation and Snowflake Inc. also show negative ROICs of -30.41% and -24.13%, respectively, with WACCs of 11.29% and 8.23%. Their ROIC to WACC ratios are -2.69 and -2.93, indicating inefficiencies in capital utilization.
Robinhood Markets, Inc. (HOOD) is the outlier among these companies, with a positive ROIC of 7.38% and a WACC of 12.40%, resulting in a ROIC to WACC ratio of 0.60. This suggests that Robinhood is effectively using its capital to generate returns that exceed its cost, setting it apart from its peers.
Affirm Surges as Strong Earnings and Bullish Outlook Lift Investor Confidence
Affirm Holdings Inc. (NASDAQ:AFRM) delivered a standout second-quarter performance, far exceeding expectations as demand for its buy now, pay later (BNPL) services remained strong. The upbeat results sent shares soaring more than 21% intra-day today.
The San Francisco-based fintech company reported earnings per share of $0.23, a sharp contrast to analysts’ forecasts of a $0.16 per-share loss. Revenue also outpaced expectations, climbing to $866 million compared to the anticipated $805.62 million.
Affirm’s outlook reinforced investor optimism. The company projects third-quarter revenue between $755 million and $785 million, aligning closely with Wall Street’s estimate of $773.2 million. For fiscal 2025, Affirm expects revenue in the range of $3.13 billion to $3.19 billion, exceeding consensus projections of $3.11 billion.
The strong performance comes at a time when other fintech firms have struggled, prompting some investor caution leading up to the earnings release. However, Affirm demonstrated resilience, balancing rapid growth with solid profitability.
Affirm Holdings, Inc. (NASDAQ: AFRM) Sees Positive Movement in the BNPL Sector
- Robert O'Hare, Affirm's CFO, sold 79,039 shares, indicating significant insider activity.
- BofA Securities raised its price target to $74, showing confidence in Affirm's market position and future growth.
- The stock's upward trend and strategic partnerships contribute to its positive outlook in the BNPL market.
Affirm Holdings, Inc. (NASDAQ:AFRM) is a key player in the 'buy now, pay later' (BNPL) sector, offering consumers flexible payment options. The company competes with other BNPL providers like Afterpay and Klarna. On November 25, 2024, Robert O'Hare, Affirm's CFO, sold 79,039 shares of Class A Common Stock at $70.01 each, as reported on Form 4.
BofA Securities has shown confidence in Affirm by raising its price target to $74 and maintaining a Buy rating. This suggests that Affirm is well-positioned to capture more market share from its BNPL competitors. The stock's recent performance supports this view, with a current price of $69.35, up 4.21% or $2.80.
Affirm's stock has been on an upward trend for four weeks, partly due to the Federal Reserve's interest rate cuts and strategic partnerships with major companies. On Monday, the stock hit $62, its highest since February 2022, sparking discussions about potentially reaching $100. This optimism is reflected in the stock's recent high of $70.20.
At the FT Partners FinTech Conference on November 20, 2024, Affirm's Chief Revenue Officer, Wayne Pommen, discussed the company's strategies and performance. This event likely contributed to the positive sentiment around the stock, which has seen a trading volume of 8,142,052 shares today.
Affirm's market capitalization stands at approximately $21.78 billion, indicating its significant presence in the BNPL market. The stock's 52-week range shows a low of $22.25 and a high of $70.20, highlighting its recent strong performance and investor confidence in its future growth.
Affirm Upgraded by Wells Fargo to Overweight, Shares Jump 12%
Wells Fargo analysts upgraded Affirm Holdings (NASDAQ:AFRM) to Overweight, raising the price target to $52 from $40, reflecting confidence in Affirm’s potential to capture an increasing share of eCommerce checkouts. As a result, shares closed with more than a 12% gain on Friday. With Affirm’s GAAP profitability expected soon, the stock valuation has become more appealing to investors.
The analysts highlighted Affirm’s advanced credit assessment and diverse funding programs, credit evaluation built into decision-making processes, and dynamic pricing that has established the company as a leading consumer lender, well-positioned for long-term 20%+ growth.
Affirm’s expanding growth opportunities, including its partnership with Apple Pay, are also noted as pivotal catalysts. Affirm could benefit from an easing rate cycle, which would improve growth potential and reduce funding costs. The Apple Pay Later initiative, expected to gain traction by mid-2025, presents additional potential, potentially boosting Affirm's 2026 Gross Merchandise Volume (GMV) by 10% and revenue by 8%.
