Affirm, a prominent player in the buy now, pay later (BNPL) sector, recently showcased impressive financial results for its fiscal second quarter, leading to a notable upward shift of more than 15% in its share value during after-hours trading on Thursday. This leap can be attributed to figures that not only outpaced analyst expectations but highlighted the company’s substantial growth trajectory.
During this quarter, Affirm reported earnings per share (EPS) of 23 cents, contrasting sharply with the consensus prediction of a 15-cent loss. Additionally, the company’s revenue hit $866 million, significantly eclipsing the anticipated $807 million. These results reflect a robust demand for BNPL services, particularly as more consumers seek flexible payment options amidst economic uncertainties.
A critical metric for Affirm is its gross merchandise volume (GMV), which serves as an indicator of the total value of transactions facilitated by the platform. In an encouraging turn, Affirm recorded a GMV of $10.1 billion, well above the anticipated $9.64 billion. This accomplishment marked the first time that GMV exceeded the $10 billion mark, representing a remarkable year-over-year increase of 35%.
Moreover, the revenue for the quarter showed a staggering 47% increase compared to $591 million in the same quarter the previous year. This rise in revenue outpacing GMV typically reinforces the notion of robust unit economics, indicating that Affirm is successfully optimizing its acquisition and transaction models.
Transaction Costs and Profitability Metrics
An essential aspect of Affirm’s financial performance is its revenue less transaction costs (RLTC), which surged by an impressive 73% to reach $419 million. The RLTC margin stood at 4.1%, surpassing the company’s long-term target range of 3% to 4%. Affirm’s Chief Financial Officer, Rob O’Hare, attributed part of this success to a $60 million gain from a strategic repurchase of convertible debt executed at a discount. However, he stressed that the core of Affirm’s positive performance lay in fundamental business growth and operational efficiencies.
O’Hare pointed out that the company also excelled in adjusted operating income, emphasizing this as a key profitability metric closely monitored by analysts. For the upcoming quarter, Affirm has projected revenue between $755 million and $785 million, with a midpoint expectation of $770 million. This guidance aligns with analyst estimates, illustrating the company’s commitment to transparency and maintaining investor confidence.
Affirm’s active consumer base has shown significant growth, increasing by 23% to reach 21 million users. This surge is indicative of the improving appeal of BNPL solutions, resonating particularly well with younger demographics. Central to Affirm’s strategy is the Affirm Card — a product designed to encourage more extensive customer engagement. The card’s active user base has ballooned by more than 136% year-over-year to 1.7 million, signifying a doubling of card volume.
Affirm’s partnerships with major industry players like Apple, Amazon, and Shopify have also been pivotal in driving this momentum. In a strategic alliance with Apple, they plan to allow U.S. Apple Pay users to directly apply for Affirm loans via their devices. Such integrations position Affirm to capitalize on the increased affinity consumers have for mobile shopping and digital financial solutions.
The fiscal quarter revealed a marked increase in 0% interest loans, which merchants and manufacturers often subsidize to stimulate sales. As Libor Michalek, Affirm’s president, highlighted during the earnings call, such promotional strategies typically align with broader market trends, particularly when merchants are focused on growth during peak sales periods like the holiday season.
Looking ahead, Affirm is steadfast in its commitment to achieving profitability based on Generally Accepted Accounting Principles (GAAP) by the end of the fiscal fourth quarter in 2025. With an increasingly solid consumer base and expanding collaborations, the company appears well-positioned to leverage its current momentum for sustained growth in the competitive BNPL sector.
Affirm’s latest earnings report not only underscores its robust financial health but also reflects a strategic approach to navigating a rapidly evolving consumer finance landscape. The combination of operational efficiency, strategic partnerships, and a growing user base marks a promising trajectory for the company in the coming quarters.
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