Affirm Holdings, Inc. (AFRM) on Q3 2021 Results - Earnings Call Transcript

Operator: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Affirm Holdings Fiscal Third Quarter 2021 Earnings Conference Call. At this time, lines have been placed on mute to prevent any background noise. After the speakers’ remarks, we’ll open the lines for your questions. As a reminder, this conference call is being recorded. I’d now like to turn the call over to Mr. Ron Clark, Head of Investor Relations. Thank you. You may begin. Ron Clark: Thanks, operator. Before we begin, I’d 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 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. Max Levchin: Welcome, everyone, and thanks for joining us on today’s call. We’re excited to update you on the performance of our business and the progress we achieved since our call in February. But before we go through the numbers, I would like to start by sharing a few stories from the past quarter to help demonstrate the power of Affirm. As many of you know, at Affirm, one of our core values is that people come first. That means that we constantly consider our impact on people’s lives, and we strive to put their interest before our own. That’s why we never charge late or hidden fees. It’s also why we’re always looking at what consumers have to say about us and how we’re helping them get the things they want and need. In March, we celebrated Affirm’s ninth birthday with a giveaway on Instagram. To participate, we asked consumers to share their favorite experience or purchase using Affirm. I was inspired by many of the more than 11,000 personal stories that were posted. One nurse thanked us for the affordable monthly payments that allowed her to buy a Theragun Prime massager, which helped soothe her aches and pains after a 12-hour shift during the pandemic. A mother of two thanked us for helping her take her family to Disney World just before her new baby arrived. She appreciated that she could book a special vacation without breaking the bank. I also frequently speak with merchants. Understanding their needs and how we help them achieve their goals is critical to establishing long-term partnerships. Recently, I’ve been spending a lot of time with travel merchants in particular as they focus on meeting consumers’ pent-up demand coming out of the pandemic. Thanks to Affirm, companies like Priceline, which we started partnering with in 2018, have added new customers. Priceline shared with us that their consumers are booking with greater confidence because of Affirm’s flexible and gaucher-free payment solutions. They also shared that Affirm helps them expand their reach among millennial and Gen Z consumers. Michael Linford: Thanks, Max, and good afternoon, everyone. As Max noted, we had a strong third quarter. GMV and revenue exceeded our financial outlook, growing 83% and 67%, respectively, and accelerating from the year-over-year growth rates we achieved in the second quarter of 2021. We delivered on this growth with significantly greater capital efficiency, reducing equity capital required by 10% compared to the prior year period, despite growing the balance sheet by more than 100%. We also delivered stronger credit performance with our allowance as a percentage of loans held for investment declining to a record low of 5.2%. These trends are encouraging, and we remain focused on building on this momentum as we move forward. I’ll now walk you through some of the key financial highlights for the quarter and then share some color on our financial outlook, which we are raising today to reflect the strong performance of the business. Unless otherwise stated, all period-to-period comparative data refers to our third fiscal quarter of 2021 compared to our third fiscal quarter of 2020. Third quarter GMV grew 83% to $2.3 billion, exceeding our outlook for $1.8 billion to $1.85 billion. The increase was driven by strong merchant and consumer adoption across all categories. As of the end of the third quarter, active merchants more than doubled to nearly 12,000 while active consumers, which we measure over the prior 12-month period, increased 60% to 5.4 million. Transactions per active consumer also rose from 2.1 to 2.3. While GMV exceeded our outlook, the momentum of the business was even stronger than the 83% headline growth indicates. Excluding Peloton, the third quarter GMV doubled, driven by growth across all categories that Affirm serves as well as from both new and existing merchant relationships. The broad-based category growth also served to diversify merchant concentration as Peloton, where fulfillment lead times improved, outpacing our expectations, represented 18% of third quarter GMV compared to 25% a year ago. As Max indicated, travel was the real highlight among our verticals, even though its takeoff began late in the quarter. Travel accounted for just 2% of September quarter GMV but has steadily grown to 9% in the March ending quarter. In April, travel growth continued to accelerate, taking its proportion of GMV to 11% of the Company-wide total. Given the investments in partnerships we’ve made in the category, we expect travel to contribute meaningfully in the fourth quarter and beyond. Operator: Our first question comes from the line of Dan Perlin with RBC Capital Markets. Dan Perlin: Thanks, guys. And good evening. I just wanted to kind of make sure I understand all these dynamics that are at play here. In particular, the merchant take rate in the quarter dropped and it looks like it’s implied to kind of stay at these levels in the June quarter. I’m assuming some of that has to do with maybe Peloton and also bringing on Shop Pay Installments. But if you could maybe help with that dynamic first, that would be very helpful. Michael Linford: Yes. So, when looking at merchant fee revenue, the first thing is really important to sum up both the merchant network revenue and the virtual card network revenue lines. In particular, the virtual card network revenue is a key way we collect merchant fees from our travel merchants. So, as travel continues to gain in importance, it’s an important line to look at in combination. And then, yes, the biggest impact’s around just the total take rate, which was actually in line with our expectations, is the mix away from longer-term 0% loans, notably Peloton, which declined in concentration. Dan Perlin: Okay. So, are you implying that -- I know you don’t want to go out to 2022 guidance at this point, but it would -- I feel like the models were set previously to be closer to 500-plus basis points in the 2022 period, and this is kind of suggesting that that may be accelerating on the downtrend here. So all I’m trying to, I guess, ultimately get to is, is your expectation that Shopify is going to meaningfully increase the GMV to help offset that, or is this kind of the run rate that we should be thinking about even when we combine both the virtual card and the merchant network as we think about jumping on to next year? Thank you. Michael Linford: Yes. We’re not going to give any guidance into ‘22 right now. But the only other thing I’d add is, there’s a small impact from, obviously, a $3.5 million number you see in Peloton this quarter and then the interest income dynamic, which definitely affects the merchant fee recognition is also at play here. But, we wouldn’t expect there to be a material change from -- on the merchant -- total merchant revenue side from the impact of Shopify. Operator: Our next question comes from the line of Ramsey El-Assal with Barclays. Ramsey El-Assal: I wanted to ask about the travel and ticketing vertical. It really seems to be enjoying a pretty rapid recovery, candidly more rapid than I would have expected, given the state of the world right now. It’s up at about 9% in the quarter of total GMV and I think you said 11% in April. Where can we see that go? Do you think this vertical will become a larger percentage of your business, presuming that there’s still plenty of runway for the travel recovery to kind of play out? Max Levchin: Yes. So, first of all, you’re totally right. Traveling and ticketing is seeing what could only be described as a resurgence. So, if you look at the comparison to last year, fiscal Q3, which was a high pre-COVID quarterly market, it’s really important to note that in general, we are comparing in this quarter to kind of a pre-COVID Affirm because obviously COVID changed everything. But the growth even versus that number was 50% that we’re coming off from a essentially collapsed base. Now, if you sort of zoom in and look at what’s happening right now, the month-to-month growth is nearly tripled. And so, it’s just an unbelievable resurgence, very, very quickly in that space. And we’re very excited about it is. We’re very well-positioned. We have all kinds of exciting partners in the places like Ikon Pass, Vrbo, accounts like Expedia, Priceline, some of these folks have been with us for a very long time, like other new partner and then, of course, Delta Vacations, American Airlines, our enormous partner as well. And so, we’re very well positioned in the space. It actually speaks a little bit to the fact that we’re quite unique among our BNPL brethren in a sense that we play in both low and high-ticket items, and obviously sort of pent-up demand for just getting out of town and going somewhere nice implies higher ticket values and we have to provide our services for both multi-hundred dollar and multi-thousand dollar tickets there. So, we do very well with all of those. So, I think, I’ll let Michael opine on exactly what we might want to guide to. But, the overall economic recovery is just huge in the travel ticketing space, and we are super well positioned to benefit. We’re starting to see all the investments that we made over the last year just setting up for this recovery really pay off. Ramsey El-Assal: That’s terrific. And I also wonder if I could ask you to give us a little more color on the Returnly acquisition, sort of how it fits into your broad strategy, maybe a bit on revenue synergies and an annualized contribution to the P&L just so we can kind of figure out how to model it next year. Max Levchin: I’ll let Michael speak to the modeling part of this, since that’s certainly his headache. But, in terms of the value to us, it’s an amazing synergy. If you think of it sort of from the product point of view, Returnly literally picks up where Affirm leaves off. So, if you look at -- we bring the consumer to the checkout counter with the confidence and certainty that they will be able to afford this, there’ll be no fees. There’ll be total transparency in pricing, often go and they’re happy to buy. And what will happen if the shoe doesn’t fit or if they don’t quite like the color, they need it exchanged. And up until the Returnly acquisition, Affirm said, well, great, we’ll be a really nice clean refund process for you. But once the merchant restocks and refunds, then you can come back and shop. And we always saw that as just a huge opportunity for us to step in and say, well, what if what if we know a customer well enough to allow them to shop even before they put the unwanted item in a box so that they can accelerate commerce for them to get their satisfaction that much faster and help merchants just move the inventory that much quicker? And so, we saw this long enough ago as we actually invested in Returnly. So, this is not an old friend. We would track it and see progress for a very long time. We’re proud investors and something to realize that the synergies were too great to let them be too far away from us and completed the acquisition. And you will see just an incredible amount of synergies. First and foremost, from the point of view of going to markets, when we speak to merchants, we’ve heard the question, what do you do about returns? Often of our standard answer has always been, well, we’ll be your best return handling partner because consumers love us. We don’t charge fees. There’ll be no hidden gadget. Now, of course, we can augment by saying, "actually, we’ll make it even better, before they even have to put the unwanted item in a box, we will be there, they can start shopping right away and help you sell more. And so that’s why we’re so excited about this and it’s just close so we have a ton to bring to market together. We have a massive network of users. 8 million people have used Returnly successfully, and that’s another shift for our products on the Affirm side, and there’s much more work to do together. I don’t know, Michael, if you want to comment on how to account for the revenue opportunities. Michael Linford: Yes. We haven’t disclosed any revenue or profitability for Returnly. We will update you guys in September. What I would note now though is they do have two different revenue streams. They do charge a SaaS model for most of the merchants who use the product, which we think adds stickiness and adds into the fight in the low AOV space. And they also as an underwriting component, a risk-taking component, if you think about what the process that Max just outlined. We think we can add a lot of value to that, both on the cost side as well as in bringing that product to our existing merchant base. Ramsey El-Assal: Got it. Sounds like a great fit. I appreciate you taking my questions. Operator: Our next question comes from the line of Matt O’Neill with Goldman Sachs. Matt O’Neill: I was just curious if you could help articulate a little bit better a couple of sort of time lines for rollouts. So, I was just curious, in the next couple of months, what’s going to allow the 100 merchants on Shopify that is now at 10,000 merchants get up to much broader distribution? Is that on your side or Shopify’s side or both? And then, similarly, I found the card announcement, very exciting and understand that that will be a later in the year kind of launch. But just again, kind of curious what the milestones are on that as far as getting closer to a broader launch. Thanks. Max Levchin: Yes. That’s a great question. And I’m afraid I have to update the Shopify number for you. Just since the last we added the press release, the number went up to 12,500. So, we got -- this is not a forward-looking statement. I don’t know how quickly it will grow, but obviously, it’s growing pretty quickly. So just to give you a quick breakdown of what’s happening at Shopify. So, first of all, we’re obviously super excited that we’re finally here. GA for this product will be available sometime in June. And that means that every new Shopify merchant coming on to the platform will have Shop Pay Installments powered by Affirm enabled automatically. And so, we’ll just see, we think, a tremendous amount of uptake on the merchant side. Now, because Shopify is not exactly a small network, in fact, there are hundreds and hundreds of thousands of merchants that are eligible for Affirm’s products or collaborative product together, we have been pre-approving and inviting existing merchants onto the platform, and that’s where these sort of scaling numbers are coming from. We’re far from done there. And so, we expect this number to continue growing not linearly. And I have very little prediction as to how fast it will go, but there’s a lot more to add to this 12,500. And so, that’s what’s happening on the Shopify side of things. Very excited about where that’s headed. Lots and lots more to do together as well, so we worked very long and hard. One cool stat about Shopify, I just wanted to make sure that we’re honest when we offer this product to the merchants by way of being, in fact, better as opposed to just an exclusive partner. And so, we had timed the time to complete a transaction using Shop Pay Installments powered by Affirm versus all the other competing products that you may encountered in a while. In both new and existing customers, we’re at least 30% faster in converting. So, not do we only have a prime placement of this product, we also are, in fact, offering the very best product in the market. And so, I think that’s a fairly powerful endorsement on the platform. Card, so, some of you have met us during our testing the waters process before we went out to actually do a initial public offering. It’s roughly what I wanted to do with the card announcement. It’s very different. And I agree that’s very exciting, but it’s easy to get excited about what’s going on in your own head without getting confirmation from consumers. So, we announced the product primarily to see what would happen to our wait list? Would we find ourselves surrounded by yawns or people actually saying, wow, that’s the most exciting thing that’s hit the news cycle in the world that already pretty exciting fintech. Very happy to report that the wait list is of excellent length from my vantage point, and we’re very excited to bring this product to market. But, it’s all in good time. We’re going to let out this year. Matt O’Neill: Okay, got it. Thanks. And maybe just one real quick follow-up. Would you be willing to help us at all think through the composition of next quarter’s guidance, specifically with respect to the provision just because that’s been a line of outperformance in the two quarters as a public company? Thanks, guys. I’ll jump back in. Michael Linford: Yes. The last two quarters have seen pretty large releases. We do think that’s behind us now. If you look at the allowance as a percentage of loans held for investment at 5.2%, think that’s in the Zip code of a pretty safe number but not something we would see materially decline from here. Operator: Our next question comes from the line of Moshe Orenbuch with Credit Suisse. Moshe Orenbuch: Great. Congratulations on all the forward progress that you talked about with Shopify. And just wondering if you could kind of just help us understand how those customers will kind of relate to the Affirm ecosystem. Are they going to be customers just of that kind of your venture with Shopify or will they be part of the Affirm -- will they get an Affirm account, and will you be able to continue marketing to them? Max Levchin: So, I guess, the easiest thing to serve -- to make it extremely black and white is that you will be able to service your Shop Pay Installments loan either inside the Shop app or its idea for an app. So, I think that should give you sort of quite a lot of the answer. There’s a lot of user interface details that have to be read. And so, if we see the customer again together with Shopify within the broader Shopify ecosystem, which is quite a big at this point, of course, it’s very easy to recognize them within the Shop Pay environment. We have a prime placement there and that will be the smoothest experience possible. If and when we find this customer outside of a Shopify ecosystem, we want to make sure we don’t sort of say, freak them out by saying, hey, we’ve met you before. So, how do you go, you’re signed up. But that kind of experience as well will be extremely smooth and they’ll be able to reaffirm their identity, if you will, and could become -- be able to use our services on any other merchant. So, there’s a slight difference between all those paths, but they’re all designed to be extremely simple. The most important thing that’s really worth understanding is that the underwriting cost, the data associated with the customer provisions, all the things that we have to do to make sure that this customer is, in fact, someone we are willing to take the risk with happens in that first transaction. And so, there’s just an enormous synergies financially as well as from user interface point of view as we bring these customers on board. Moshe Orenbuch: And then, clearly, then you’d be able to, even in some form, be able to kind of -- or maybe, I guess ask, would you be able to reach out to them at that point and kind of invite them? Is that something that’s possible? Max Levchin: I think, depending on the circumstances, I think there’s probably a little bit more nuance to the answer than yes, but if you have doubt, we have no intention of spamming Shopify customers, if that’s the underlying question. That’s not happening. Operator: Our next question comes from the line of Andrew Jeffrey with Truist. Andrew Jeffrey: Certainly encouraging to see the recovery in travel and ticketing. Can you kind of just juxtapose that with any other changes in card-present behavior you see from consumers in reopening? In other words, is there any shift in consumer behavior in e-comm that might otherwise temper a very strong recovery in that central category where there seems to be a lot of pent-up demand? Max Levchin: So, I think there’s a lot of different strands going on. So, in general, we see the economic recovery as a huge tailwind for us, and there’s a bunch of different things that are connected to it. And some of it is in travel and ticketing category, which just sort of coiled up and is now rapidly spitting up as people are able to travel finally to see their loved ones. There’s also all kinds of subcategories that may not naturally go to immediately but they are quite large and are happening. For example, 97% of old weddings got postponed and only 5% of that got canceled. So, there’s a lot of people that need to buy relatively expensive bridal dresses and also some other things. And again, playing in the high-ticket items as well as low-ticket items really positions us well for these sorts of affordable luxuries as well as everyday expenses. And so, we see a lot of demand in all these categories that just kind of took a break during 2020, if you will. That said, we are not seeing a reduction in demand in fashion and in home, fitness, outdoor. All the different categories where Affirm has traditionally been very, very strong are in fact continuing strong. If you actually, again, look at the sort of the pre-pandemic comparison we have in this quarter, ex-Peloton, we grew 100%, which is a pretty massive acceleration from the quarter prior. So, we effectively, not quite, but almost doubled the second derivative of growth here. And that is already as the recovery began, still from a small base, but the demand for this product is what’s driving our growth. It’s less the sort of trade-off from category to category. So, we’re very excited about all of these things and obviously have to. I believe it will be there in all those places as the demand spins up. Andrew Jeffrey: Okay. That’s helpful. And with regard to card-present generally, as you think about that category, can you update us on your thoughts and how important the card is going to be to growth in card-present and what the trajectory might look like? Max Levchin: I was actually -- I was trying to figure out what you meant by card-present. So now, I get it. So, slight step back, but it could be important for us to provide what sometimes known as the omnichannel solutions especially for our largest partners. We have a very large long-term partnership with Walmart that’s been very successful. A lot of our larger enterprise customers are now setting up for completely new modalities of interacting with their consumers, buy in store, return online, buy online, return in store. So, all these different new modes of transacting is a thing, and it’s really important that we are able to meet the consumers where we are. In part, our card strategy we think is kind of one of the best reengagement techniques we have to offer to our consumer. If Affirm is something that you love and our net promoter score speaks for itself, if we are in your wallet, be it on a screen or in your actual physical wallet, we’ll have a chance to remind you that you can use Affirm pretty much everywhere you go. And so, we think of our card strategy and overall omnichannel strategy in store and out of store as a sort of continuous landscape of just being where the customer is and making sure, in this case, the end consumer is making sure that we’re able to meet their demands. Operator: Our next question comes from the line of James Faucette with Morgan Stanley. James Faucette: You mentioned that some of the take rate compression came from, I guess, Peloton and its 0%, coming down as part of your mix. Did you see any pulling back from other merchants from their own 0% promotions that may have also impacted that at all? And I’m wondering, as the mix changes, maybe to a little bit more interest-bearing, how we should think about that impacting customer acquisition, et cetera? Michael Linford: Yes. We did not actually see a big change in terms of 0%. I mean, I think the biggest driver is that long-term 0% program with Peloton, which clearly did come down in total. But otherwise, I think the 0% business was flat year-on-year for the same period. So, we didn’t see a pullback on 0% programs generally, and I think the biggest impact was from Peloton specifically. Max Levchin: In fact, 0% outside of Peloton accelerated. James Faucette: Got it, got it. That’s helpful. And then separately, like you kind of highlighted or called out what you expect to the revenue impact from expected returns to be associated with the Tread products. Do you think that will be fully captured -- or that program will be fully captured in the June quarter, or is that do you think going to spill beyond the June quarter into the second half of the calendar year or the first half of your fiscal year? Michael Linford: Yes. So, we used Peloton’s guidance in their Q around the $50 million estimated return volume, and we’re a certain percentage of that. And we -- that’s how we got to our $3.5 million number that was actually in the fiscal Q3. So, we don’t anticipate there to be any impact in fiscal Q4 associated with further refunds. I also thought it would be important to put in context that Peloton return number. We’ll do a couple of hundred million dollars in returns in any given quarter. So, for us, this is a much smaller impact than 1 might think from the outside. James Faucette: Got it, got it. And so, just to be clear on that, Michael if -- however, returns vary from their estimate, like there could be some future small adjustments to account for that then? Michael Linford: Yes, exactly. But, we don’t anticipate that to be material. I mean, when we take even the bulk of that is the $3.5 million number, which again was recorded in Q3. So, this should not be an impact in Q4. Operator: Our next question comes from the line of Jason Kupferberg with Bank of America. Jason Kupferberg: Thanks, guys. I just wanted to start with a follow-up question on Shopify, and I’m just wondering how much GMV and/or revenue within the Q4 guide there. And just any color on consumer uptake of Affirm/Shop Pay Installment that you’ve seen so far among the merchants that have gone live. Max Levchin: I’ll let Michael speak to the guidance but I don’t think we’re giving it. But, I think it’s a little bit early to speak to the deck numbers, just given the fact that literally, the 10,000 number -- 12,500 number that we quoted, all of this happened in less -- the last 30 days, just to make sure I’m not perjuring myself there. And so, there is -- it’s a very, very rapidly increasing merchant base. We’ll be able to speak a little bit more clearly as to what this actually means in terms of volume and in terms of consumer adoption. Obviously, we spent nearly a year testing the product, making sure it’s much faster than competition, much better converting -- competitive in and of itself and better positioned than the competition. But we’ll -- we have very high hopes for what that actually means in terms of volume generation, but we’ll speak to real numbers as we have them. Jason Kupferberg: Yes. Okay… Michael Linford: Very specifically for Q4, the focus is getting to GA so that the impact we would expect to be more material in fiscal ‘22. Jason Kupferberg: Okay. So, you think maybe next quarter, we’ll get a sense on what your expectations are for ‘22 from Shopify? Michael Linford: Yes. Jason Kupferberg: Okay. And then, just a follow-up question. I’m wondering what trends you guys are seeing just in terms of both consumers and merchants adopting more than 1 BNPL provider and what you think the implications over time might be for industry consolidation. Max Levchin: Definitely hard to speak to industry consolidation since that doesn’t include us. We think we’re the best. But obviously, everybody has a bias for their own. That said, I think last quarter, I said something on the lines of we expect low AOV to have ultimately capacity to offer multiple providers integrated, while higher AOV probably trends to one provider. I think that’s still true. I would say that the momentum towards multiple providers at a single low AOV merchant has not been quite as quick as I’d anticipated, while the ability to retain an ability to serve high AOV merchants has been even stronger than I thought. I think the complexity of both technical and risk management on the higher AOV sort things, that’s what we consider to be our core vantage. That’s very real and it’s very hard for our competitors to speak credibly in that area at all. On the low AOV side of things, I think the -- again, I believe that ultimately, brands will have one or two, maybe three providers. It’s a little bit early. There’s so much growth available in every sub-segment. In low AUV, it’s fundamentally fashion, beauty, some of this are lower -- hard goods, low-cost hard goods. And at the moment, there’s so much demand just looking at the numbers that I just quoted on Shopify. It’s pretty clear that there’s an enormous amount of pent-up demand on the merchant side. And so, at the moment, the competitive overlap is not yet a major topic on our minds. But, we’ll report back in a quarter. Operator: Our next question comes from the line of Chris Brendler with Seaport Global. Chris Brendler: I wanted to ask about merchant adoption of buy now, pay later. I look at your Affirm app and all the merchants that are in there that currently don’t have it on their checkout screens or website. And it just feels like with the consumer adoption starting to gain traction, can you give us a little insight on where you think we are in terms of merchant adoption, especially in the travel space? It seems like you got some great numbers in travel this quarter, but there’s a lot of travel sites that don’t have buy now, pay later yet. So, maybe give your thoughts there. Thanks. Max Levchin: I agree. That is why we have a sales team. They are very hard at work. It’s their problem. So I’ll give you a more serious answer. So, in our app, and it -- actually even -- there’s multiple ways we collaborate with merchants. One of them, obviously, is the -- embedded at the point of sale, sort of classic buy now, pay later or pay in 6 day and 12, whatever the merchant’s suite that we offer at checkout that makes sense for this particular price point. Beyond that, there’s our approximately, and in our app, you can be listed whether you’re integrated or not. The way we get competition from merchants for driving these new incremental transactions, which are very, very powerful, by the way, for them, their impact more valuable than consumers that we help close at the point of sale. These customers actually are starting their shopping journey in our app and are going to a point of sale at a merchant. In those situations, merchants quite frequently will pay us essentially a bounty or a referral bonus for bringing this consumer to them. And then, within the app itself, we have quite a lot -- and by the way, when I say the app, I use it interchangeably with our sites. A fair amount of our consumers use our sites just perhaps because they prefer the larger screen format. But in both those cases, those are potentially advertising opportunities for our merchant partners to bring their offers, new products, et cetera, to the Affirm ecosystem. And so, in all those situations, there is a financial relationship with the merchant. Sometimes, the merchant doesn’t have Affirm integrated at the point of sale yet. They may have already signing agreement, and we are waiting for the technical teams to become available. Part of what we pride ourselves on is this ability to be live here very quickly. We have a variety of integration modalities. We have this thing that we’ve really been leading into, called, Affirm Lite, which allows merchants to go live literally within minutes of signing a contract. But there’s many different modalities of integration. Sometimes, it’s going high, that’s when sometimes you’ll find us promoting a merchant in our app and yet the merchant doesn’t yet have a point of sale integration. But, all of those things are just ways of delivering value to our merchant partners. That’s what we do all day every day. Chris Brendler: Great. That’s great color. And I actually have a related question, speaking of delivering value to your merchant partners. It seems like the biggest bear case or pushback I get on this story is merchant pricing and the entrance of PayPal and other potential providers who are going to give it away "for free" or credit card interchange rates that could potentially undermine the pricing model that a lot of the buy now, pay later start-ups or, I guess, pioneers have used. My impression is that Affirm is a little bit different, given your product mix and your ability to do loan products. So, maybe just comment on merchant pricing and your ability to drive contract renewals that have pricing at relatively similar levels, given the value into merchants. Thanks. Max Levchin: There’s a lot in there. I’ll try to keep it short, although this may well turn into a . So, one maybe way of thinking about merchant’s perception or merchant’s relationship with Affirm, we are not just a payment provider. We are fundamentally a marketing device for merchants. And so, when you typically talk about price compression, as you know -- why are you outside the interchange boxes of a common payment industry? It doesn’t really apply to us. We are competing for both, the payments budget but more importantly for the marketing budget. When the merchant says, do I discount or do I do something else? Affirm stands up and says, don’t discount. Instead, offer 0% rate and maintain your price integrity. That is not something merchants can do without our help, but that’s what we do at Peloton. That’s what we do at almost half of our transaction volume. The 0% transactions are really powerful converters of consumers that are on offense. They’re trying to figure out whether they want to transact or they want to transact right now. So, it’s really, really important. And fundamentally, that doesn’t really go against the payments budget, and it doesn’t compete with payments so much as it becomes a marketing channel or a marketing accelerator. There’s a lot more where that came from, if you just think for a second about what the app does. So, it doesn’t even help consumers convert, it helps them become excited about a product they can find out about it as they are spending time in our ecosystem. Maybe servicing their loan, maybe they’re checking out what merchants we brought on. But, that’s another opportunity to tell our consumers that, hey, this is new promotion, this is new interesting idea, all while helping the merchant maintain price integrity. And so, I think those kind of points really highlight that we’re fundamentally not in the same space as credit card players or -- we’re not comparing our pricing to them. I’ll actually pause there. I feel like I’ve meandered into details. Michael, keep you honest with… Chris Brendler: I don’t want to get into detail on this call. Maybe Max -- that’s awesome. Maybe just fair to say that merchant pricing is not one of your biggest concerns near term? Max Levchin: It’s not, and probably where it’s most apparent is in the high-ticket items. I think, you can really see that -- navigating that becomes a lot more about managing risk and managing the technical integration and just the overall interaction with the consumer also creates -- if you think about buying a Peloton, that’s 39 opportunities for me to tell you about all the cool exciting things that are happening in the Affirm space. And that’s really, really powerful. It’s very different from your relationship with PayPal, frankly, or with your credit card provider. Operator: And our next question comes from the line of Bryan Keane with Deutsche Bank. Bryan Keane: Hi, guys. Really solid quarter. I also was going to ask about that. Maybe Michael, just your perspective on a same-store sales kind of merchant take rate because I know that does come up a lot, maybe on renewals, what you’re seeing, and is there a big difference between high AOV and low AOV? Michael Linford: There’s not a difference in terms of the trend around renewals. I think, frankly, we’re probably still in the early innings on that. And that will bear itself out over the next couple of years before you start to see meaningful pressure on things like contract renewals. So, not really a data point there. What I would say though, is that we -- it’s unquestionably very competitive out there in the low AOV space. If you’re only offering payment for, it is increasingly becoming commoditized. And that’s why we think it’s so important to offer a wider range of average order value solutions and increase the merchant services that we offer beyond just buy now, pay later, and hence the acquisition for Returnly. Bryan Keane: Got it. And just a follow-up on the Shopify deal. How will you guys end up converting more of the existing merchant base, the 12,500 you’re at now? Is there something you’re doing to get those guys ramped up quicker? And then, how also do you get more checkout? Do you push -- is there a way to push the solution more to get them to push the Affirm solution? Thanks. Max Levchin: I think the short answer is, we expect to get a lot more. I think, this deal really only makes sense if this is a pervasive, I guess, is the word I’m looking for, a solution across the Shopify ecosystem. And I think both companies are very motivated to make sure that now that we’re finally ready for a GA rollout that it comes to a lot more than 12,500 merchants. 12,500 merchants went live primarily in just the last 30 days or so. And so, this is a good test of what demand looks like. The multiple education opportunities that we have with -- in concert with Shopify. For larger players, we go to market together. We have our sales teams working side-by-side, making sure that we educate enterprises, making sure that we figure out exactly what solutions they customize for them. A big part of why Shopify chose us is we’re not a one-trick pony. We’re not just paying for and what else do you need. We’ve built very, very complex, very interesting systems for our partners from Priceline to Walmart. And some of the larger players that are on Shopify really have some pretty strict requirements and there’s plenty of opportunity to go there. And in the long tail, Shopify is fairly exceptional at communicating with the merchants. And we are very excited to finally be ready to tell the story to the hundreds of thousands of shops that are eligible for this solution. Operator: And with that, ladies and gentlemen, this concludes our question-and-answer session, as well as today’s conference call. You may now disconnect your lines at this time. We thank you for your participation. And have a wonderful day.
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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.