Affirm Stock Falls Despite Exec Saying It's ‘Turning the Corner’ on Profitability

Key Takeaways

• Buy-now-pay-later (BNPL) lender Affirm Holdings Inc. said it was “turning the corner” on profitability as it raised its operating margin to 12% to reverse negative earnings trends.
• BNPL usage is tracking with sales at general merchandise retailers, as the lender said it hasn’t adjusted its practices to lure new consumers, despite the recent surge in borrowing through these plans. 
• Affirm is targeting expansion to the U.K., but won’t add offering mortgages or auto loans.

Buy-now-pay-later (BNPL) lender Affirm Holdings Inc. (AFRM) is “turning the corner” on profitability as both shoppers and retailers turn toward its payment options, like its Affirm Card product, which is driving more sales in brick-and-mortar retailers, but its shares fell Monday.

On a trailing 12-month basis for the current quarter, Affirm was “north of break-even” and was functioning at about 12% of operating margin, reversing the negative trend over the past two years, and setting the lending company up to start producing a profit after narrowing its losses in recent quarters, said Rob O'Hare, Affirm senior vice president of finance, during an investors event on Monday.

“We’ve grown the business at a really incredible rate over the last several years of being a public company and we have continued to drive nice operating leverage to the bottom line,” O’Hare said.

BNPL Use Tracking with Retailer Sales

While some reports have shown an increase in consumer usage of BNPL options this holiday season, O’Hare said that Affirm’s lending volume has tracked with sales of its general merchandising retailers at about the same rate as the previous quarter, Affirm added that it hasn’t changed its lending practices to try to win new consumers. 

“We have been pretty consistent this holiday season around our underwriting posture. We don’t use loosening as a way to drive short-term growth,” O’Hare said. 

Instead, O’Hare said the lender is driving growth from online shopping, where partnerships with Amazon.com Inc. (AMZN), Shopify Inc. (SHOP), and others have helped the company integrate into 60% of U.S. e-commerce, and from retail stores like Walmart Inc. (WMT) and Best Buy Co. (BBY), where its Affirm Card is introducing more shoppers to BNPL plans.

The company said it has also set aside funding for an upcoming expansion into the U.K. market.  While Affirm’s outlook for 2024 targets a gross merchandise value (GMV) of $24.25 billion, a key metric for BNPL lenders, O’Hare said, its milestone is to reach $50 billion annual GMV. 

“Really, we’re focused on driving as much ubiquity as we can at the checkout,” O’Hare said.  “We want to do that online, via e-commerce like the majority of our volume is today, but also longer-term, with the Affirm Card, in particular, where we can start to earn our share at the checkout in brick and mortar as well, which in the U.S. is a larger opportunity than e-commerce.”

One way that Affirm is driving growth is for financing of even smaller purchases, and steering away from secured lending like home mortgages and auto loans, which would put Affirm in the position of having to potentially repossess the items the loans are paying for. Instead, O’Hare said, Affirm is working with auto service stations to offer BNPL for vehicle repairs. 

“The trend is for smaller transactions,” he said. 

Shares of Affirm are up 125% since Nov. 1 on optimism over BNPL going into the holiday season, but they fell 5% to $39.92 after the investor event Monday. 

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