May 13, 2022

After sliding 40% over the past week and 90% in six months, shares of the buy now, pay later (BNPL) provider Affirm saw a 30% jump in after-hours trading Thursday (May 12) after the San Francisco-based FinTech reported strong trailing results , optimistic guidance and an extension of its Shop Pay  installment program its runs for over 100,000 Shopify merchants. The much-needed relief rally comes in the wake of months of stress that has not only battered shares of the 10-year-old business that went public just 16 months ago but has pressured the entire BNPL group, as reflected by the 50% year-to-date drop in the PYMNTS FinTech IPO Index. “We are especially proud of the reengagement we are driving with consumers, as 81% of our transactions were from repeat Affirm users,” Founder and CEO Max Levchin told analysts after the close of business Thursday. Not only did the tally mark the highest repeat transaction rate ever reported, but was the result of adding 1.5 million new customers. “[These are] consumers that joined our movement to replace confusing, outdated financial products with new, honest ones,” Levchin said, before telling analysts that the company’s strategy to drive growth, maintain attractive unit economics, and deploy superior risk management, were on track to achieve sustained profitability by July 2023. Repeat & Retain In running through Affirm’s core metrics, CFO Michael Linford pointed to the exponential increase in merchants added over the past year, which rose to 207,000 from just 12,000 in 2021. At the same time, Linford said active customers more than doubled to 12.7 million, while gross merchandise value (GMV) advanced 73% to $3.9 billion. “It’s a testament to the increasing depth and breadth of our network, no single merchant accounted for more than 10% of either revenue or GMV for the three- and nine-month periods ending March 31,” Linford said. “This demonstrates the continued diversification of our business, which we believe is a key area of strength and resilience for our firm” he added. In addition, Affirm pointed to a mix of new product launches that it said were aimed at improving customers’ lives while also maximizing their lifetime value, including its new SuperApp, browser extension, branded debit card and new Bitcoin feature that allows savings account holders to receive cryptocurrency. Exposure to Rising Rates  Rising interest rates are not only a threat to consumers and the economy but pose specific challenges for consumer finance companies, though Linford said, so far, Affirm had not had to take any action on that front, and that merchant fees had remained relatively constant. “We view that as a real mark of success. In the face of some pretty heavy competition, we were able to maintain, and even grow in some cases, the merchant fee side,” Linford said. On the consumer side, where rising APRs are the focus of attention, Linford said Affirm’s rates were strong enough to allow it to deliver compelling unit economics. “It’s true that as rates go up, there is pressure on the funding side of our business, but it is a mistake to think about that as a flow-through on a linear basis,” he said, pointing to the company’s many different funding channels with staggered maturities and very different structures as protection. ——————————