Buy now, pay later platform Affirm‘s softening financial results may be a signal that the U.S. consumer is pivoting from spend, spend, spend to save, save, save.
Last week the company, founded by Max Levchin back in 2012, released FYQ4 results that included some clear signs of strength.
For example, the company saw 96% growth in the number of active consumers on its platform. That’s a jump from 5.7 million to 14.0 million consumers over a one-year period. And the number of active merchants on the platform has jumped massively as well. In Q4 FY21, Affirm had 29,000 active merchants using its solution. That increased to 235,000 in Q4 22. That’s a 710% growth rate.
So What’s the Problem?
Yet analysts honed in on signals the BNPL party, if not ending, is entering the guests that never leave phase.
Much of this came from guidance Levchin and CFO Michael Linford offered on the earnings call. Linford said sales in the current quarter will hit “$345 million to $365 million.” That’s lower than what Wall Street has been forecasting, according to Protocol.
The Protocol article also cites fintech newsletter Fintech Takes analyst Alex Johnson, noting that Affirm’s softening results reflect an overestimation by many companies of the ongoing strength of eCommerce as the pandemic wanes.
BNPL of course has been under public pressure worldwide as regulators and critics accuse the industry of promoting indebtedness while claiming it is a financially responsible form of payment.
This seemed to be on the mind of Affirm VP of Marketing and Communications Erika White when she spoke at a recent Adweek event.
White insisted that Affirm is on the side of the consumer and takes its underwriting responsibility seriously.
“We’re about access, not excess,” White said, adding, “Our consumers never pay a late fee or deferred interest. We are not looking to extend loans that we do not believe will be repaid.”
Managing Uncertainty
So Affirm’s sales are clearly slowing down. Our question is, what’s the driver? Is it competition, inflation, or rising consumer debt? Or is it consumers trimming their sales in anticipation of a downturn? Here is what Levchin said on last week’s earnings call.
“As proud as we are of our results this year and quarter, we know that many people are thinking about how the economic picture may unfold and so are we. The economy is more than likely in the beginning stages of a downturn,” the founder and CEO said.
“It’s too early to tell how deep it will be and how long it will last. So how do we continue building the strongest Affirm amid uncertainty? In a sentence, we are going to be cautious in our management of risk while investing aggressively in the expansion of our total addressable market.”
Affirm’s shares fell by roughly 25% between August 25, when earnings were announced, and yesterday. Though the stock is trading higher today. Today, Affirm’s market cap is $6.9 billion. Affirm went public in January 2021 and reached a peak market cap of roughly $46 billion in November.
Most fintech companies, including BNPLs, have seen their valuations or market caps plummet this year. And rising interest rates are also fueling fears that at least some of the weaker players in BNPL may crumble under the pressure of higher borrowing costs and rising defaults on BNPL accounts.
