What are Markets Expecting from Affirm Earnings This Week?

BNPL (buy-now-pay-later) company Affirm would release its earnings for the fiscal third quarter of 2023 tomorrow after the markets close. Here’s what markets are expecting from the report.

Affirm guided for revenues between $360 million-$380 million for the fiscal third quarter. The guidance fell well short of the $418 million that markets were then expecting.

Analysts polled by TIKR expect Affirm to report revenues of $372 million in the quarter – a YoY rise of only 4.8%. If analysts’ estimates turn out to be correct it would be the slowest growth for the company since it went public.

That said, Affirm’s revenue growth has been tapering down for the last many quarters. In the previous quarter, its revenues were $400 million which was up 10.7%. The company’s revenues rose 34.2% and 39.1% respectively in the previous two quarters.

Affirm missed earnings estimates in the fiscal second quarter

The company’s GMV (gross merchandise value) rose to a new record of $5.7 billion in the fiscal second quarter as compared to $4.5 billion in the corresponding quarter in the previous year. The metric however trailed analysts’ estimates. The company’s GMV and revenues were also lower than what it had forecast.

Affirm stock crashed after releasing its fiscal second quarter earnings. The stock is usually quite volatile after the earnings release and witnesses wild price swings.

Affirm fiscal third quarter earnings estimates

Analysts expect Affirm to post a per-share loss of $0.84 in the fiscal second quarter. To put that in perspective, it posted a per-share loss of $0.19 in the corresponding quarter last year.

During the previous earnings call, Affirm lowered its full-year guidance and forecast GMV between $19 billion-$20 billion in the fiscal year. Its previous guidance was GMV between $20.5-$21.5 billion.

Similarly, it lowered its full-year revenue projection from $1.6 billion-$1.675 billion to $1.475 billion-$1.550 billion.

For the fiscal third quarter, the company forecast GMV between $4.4 billion-$4.5 billion, which trailed analysts’ estimate of almost $5.3 billion.

What to watch in AFRM’s earnings call?

In March, Apple officially announced its BNPL foray. The company’s entry into the BNPL industry might only intensify the competition. Notably, incumbents like Affirm are anyways posting losses and the entry of a tech giant with deep pockets does not bode well for them.

During their upcoming earnings call, Affirm might comment on the BNPL industry’s competitive landscape after Apple’s entry.

During the previous earnings call, AFRM CEO Max Levchin said that the Fed’s rate hikes not only dampened consumer demand but also raised the cost of funds for Affirm.

The Fed has raised rates twice by a total of 50 basis points since then. Markets would watch the commentary on Affirm’s cost of funds during the upcoming earnings call.

Also, analysts would watch the delinquency levels given the deteriorating macro environment.

Earlier this year, Affirm laid off 19% of its workforce which would affect around 500 people. Commenting on the layoffs, Levchin said, “we have hired a larger team that we can sustainably support in today’s economic reality.”

Affirm also shut down its crypto business as it tries to reduce its cost base. In his letter, Levchin said, “Concurrent with reducing our workforce, we are sunsetting several initiatives, such as Affirm Crypto.”

Fund manager predicted AFRM might go bankrupt

Earlier this year, Trent Masters, fund manager at Alphinity Investment Management predicted that Affirm would not survive 2023. He said, “When it comes to BNPL, it really is that tip of the spear where [their customers] were getting filled with fairly free capital through all the stimulus programs.”

He added, “That was the kind of the business models that I’m talking about where the free and infinite capital not just underpinned the value and the growth, but it’s actually really essential to potentially the survival of those businesses.”

Masters listed Carvana as the other business which he believes would not survive beyond 2023.

The BNPL industry’s troubles have risen

The BNPL industry is facing several headwinds. Firstly, the demand has slowed down amid tepid sales of discretionary products. The rising cost of funds is not helping matters neither is the general deterioration in the credit profile of borrowers.

Apple’s entry is another challenge for the incumbents. The iPhone maker incidentally sees financial services as a key growth area and recently unveiled its savings account that offers 4.15% APY.

Affirm stock is up almost 18% for the year, thanks to the double-digit rise on Friday. Markets now await its fiscal third quarter earnings for more insights into its financial health.