Affirm Declines as Financial Turmoil Drives up Funding Costs

2023-05-10 06:26

Affirm Holdings Inc. shares slid as the buy now, pay later firm said it expects funding costs to

Affirm Holdings Inc. shares slid as the buy now, pay later firm said it expects funding costs to remain elevated amid the recent financial turmoil, placing pressure on a key revenue metric.

The company’s revenue-less-transaction-costs fell 9% to $167 million in the fiscal-third quarter compared to a year earlier, it said Tuesday. Affirm expects higher funding costs will remain a headwind to RLTC as a percentage of its gross merchandise value over the coming few quarters.

“On a year-over-year basis, higher benchmark interest rates and credit spreads persisted and are expected to continue to be a headwind,” the company said. “Our pricing initiatives are beginning to offset some of these headwinds but are likely to take several quarters to achieve maximum benefit.”

Affirm also made greater use of its warehouse funding facilities in the three months through March 31 than it had in previous quarters owing to the volatile funding market conditions, it said. That resulted in a lower gain on sales of loans, according to the company.

Shares in San Francisco-based Affirm fell about 4.7% in late trading in New York.

Still, the firm said revenue rose 7% to $381 million in the first quarter as transactions per active consumer grew by 34%. It reported a net loss of $205.7 million, less than analysts expected, and boosted its revenue outlook for the year to a range of $1.53 billion to $1.56 billion. The company had predicted at the end of the prior three-month period that revenue for the 2023 fiscal year would be between $1.48 billion and $1.55 billion.

The firm also plans to partner with credit reporting agency FICO, “to build a first of its kind credit-scoring model,” Chief Executive Officer Max Levchin said on a call discussing earnings.

During the pandemic, buy now, pay later firms exploded as consumers turned to the companies to aid their online-shopping habits usually without accruing interest. Some consumers are turning to the companies for different reasons now, but generally the sector has struggled when compared with pandemic-spending highs.

“Despite a difficult and volatile economic environment, we delivered excellent results,” Chief Financial Officer Michael Linford said. “These were driven by small but ultimately important wins across credit, funding, and pricing.”