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 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%.
Affirm Upgraded to Buy by BTIG, Shares Jump 7%
Affirm Holdings (NASDAQ:AFRM) saw its shares jump over 7% intra-day today after BTIG analysts upgraded the stock from Neutral to Buy, citing the company's trajectory towards GAAP profitability and increasing dominance in point-of-sale financing. Analysts noted Affirm’s fiscal 2025 operating income margin is projected to reach 19%, closing in on American Express's 20% margin, with potential for Affirm to exceed this target as expense growth is expected to remain moderate.
The analysts highlighted Affirm’s increasing market share in the point-of-sale finance sector, fueled by rising demand for buy-now-pay-later (BNPL) solutions amid macroeconomic pressures, such as rising credit losses at traditional card companies like American Express. Affirm’s growing gross merchandise volume (GMV), supported by stronger merchant partnerships and consumer interest, is projected to grow 30% year-over-year in fiscal 2025, setting it apart from traditional credit card issuers.
The report also emphasized how broader shifts in consumer finance benefit Affirm, as traditional credit providers scale back due to adverse credit conditions. Additionally, new regulatory measures, including the Consumer Financial Protection Bureau’s updated late-fee rules, could make credit cards less appealing, potentially driving more consumers and merchants toward BNPL options. Affirm’s robust GMV growth, expanding margins, and strong retail partnerships, including with Walmart, reinforce BTIG’s bullish outlook on the company’s prospects.
Affirm Holdings Inc. (NASDAQ:AFRM) Receives Bullish Price Target from Barclays
- Barclays analyst Ramsey El-Assal has increased the price target for Affirm Holdings Inc. (NASDAQ:AFRM) to $54, indicating a potential upside of approximately 20.89%.
- Mizuho analysts have assigned Affirm an Outperform rating with an even higher price target of $65, reflecting optimism about the impact of lower interest rates on the company's business model.
- Despite a slight decrease of 0.58% in its stock price, Affirm's significant market capitalization and trading volume highlight its prominence in the fintech industry.
On Monday, September 23, 2024, Barclays analyst Ramsey El-Assal set a new price target for Affirm Holdings Inc. (NASDAQ:AFRM) at $54, up from its previous target, indicating a bullish stance on the stock with a potential upside of approximately 20.89% from its current trading price of $44.67. This adjustment reflects a growing confidence in Affirm's market position and future performance. Affirm, known for its "buy now, pay later" services, competes in a rapidly evolving fintech space, offering flexible payment solutions to consumers.
The optimism surrounding Affirm is not isolated to Barclays. Mizuho analysts have also expressed a positive outlook on the company, assigning it an Outperform rating with a price target of $65. This higher target suggests an even more bullish view on Affirm's potential, especially considering the benefits that lower interest rates could provide to its business model. Lower rates can reduce borrowing costs for companies like Affirm, potentially increasing their profitability and attractiveness to investors.
Despite these optimistic projections, Affirm's stock has seen a slight decrease of 0.58%, trading at $44.67. The stock's movement within the day ranged from a low of $44.63 to a high of $46.04, indicating some volatility. Over the past year, Affirm's shares have fluctuated significantly, with a low of $15.97 and a high of $52.48, showcasing the stock's potential for wide swings in price.
The company's market capitalization stands at approximately $13.9 billion, with a trading volume of about 7.35 million shares. This level of activity and valuation in the market underscores Affirm's significant presence in the fintech industry, despite the day-to-day fluctuations in its stock price. The interest from major financial analysts like those from Barclays and Mizuho highlights the potential they see in Affirm's business model and its ability to capitalize on the growing trend of flexible consumer financing.
Affirm’s Price Target Significantly Increased at Mizuho
Mizuho analysts raised their price target for Affirm Holdings (NASDAQ:AFRM) to $65 from $30 while maintaining a Buy rating on the stock.
In a recent investor note, they emphasized the rapid uptake of the "Affirm Card" and the projected 3-4 times increase in card spending for users with direct deposit. This, the analysts suggest, could significantly elevate their medium-term projections.
The analysts also pointed out a potential for surpassing management's ambitious $50 billion medium-term goal, with a "Blue Sky" scenario predicting around $55 billion by 2026.
The analysts anticipate that the focus of discussions around Affirm will shift from its Buy Now, Pay Later (BNPL) services and partnerships like the one with Walmart, towards Affirm's evolution into a comprehensive financial services company, incorporating direct deposits, savings, and more.
This rating change comes as Affirm's shares saw an over 15% increase in a single session following the announcement of an expanded partnership with Walmart.
Affirm Earns an Upgrade at Jefferies
Shares of Affirm (NASDAQ:AFRM) experienced an uptick in premarket trading today following an upgrade by Jefferies.
Jefferies analysts raised Affirm's rating to Hold from Underperform, highlighting the recent evidence of stabilizing credit risk, which they believe underscores the structural advantages of Affirm's product positioning.
The analysts also noted that the growth in adoption rates for "buy now, pay later" services is partly driven by current inflationary and macroeconomic factors. Affirm's business model allows customers to purchase items and defer payment, usually without incurring interest charges. This flexible payment option has become increasingly popular with online consumers. However, the Consumer Financial Protection Bureau has issued warnings about the potential risks for these borrowers, such as higher debt loads or a propensity for credit card delinquencies.
Additionally, this week's Cyber Monday spending reached record levels, partly attributed to the widespread use of the "buy now, pay later" option by retailers.
Mizuho Says Affirm’s Debit+ Looks Promising, Shares Surge 8%
Affirm (NASDAQ:AFRM) shares jumped more than 8% intra-day today after Mizuho Securities analysts raised their price target on the company to $20.00 from $17.00 and reiterated their Buy rating, citing the growing traction of Debit+.
The analysts noted that Google Trends search data for Affirm’s Debit+ (a hybrid pay now, buy now, pay later debit card) looks promising. The analysts compared the increase in Debit+ searches to the early buzz surrounding Square's Cash Card in 2017.
Based on their bottom-up model, the analysts suggest that if Debit+ follows a similar trajectory as Square's Cash Card, it could potentially boost the company's medium-term volume compound annual growth rates (CAGRs) from the mid-20s to the mid-30s. While this may result in a dilution of revenue less transaction costs (RLTC) as a percentage of gross merchandise volume (GMV), the incremental volume and revenue growth are expected to be positive catalysts and help offset any potential sales challenges from upcoming student loan refinancing.
Affirm Reports Better Than Expected Q3 Results
Affirm Holdings (NASDAQ:AFRM) reported its Q3 earnings results, with EPS of ($0.69) coming in better than the Street estimate of ($0.92). Revenue was $381 million, beating the Street estimate of $369.94 million.
Gross merchandise volume (GMV) increased 18% year-over-year, or 24% excluding Peloton, vs. 27% reported growth last quarter, to $4.64 billion, compared to the Street estimate at $4.44 billion. The company expects Q4/23 revenue to be in the range of $390-$415 million, compared to the Street estimate of $390 million.
While still early, the company highlighted that it had added Debit+ into its main app and that Debit+ users increase their transaction frequency 7x, 90 days after activating the solution.
