Buy now, pay later provider Affirm reduced overall operating expenses for the fourth consecutive quarter as operational efficiency and consumer growth remained a priority.
Tech and data analytics spend, which totaled $59 million during the quarter, was down 32% year over year, according to Affirm’s earnings supplement for the fiscal second quarter, which ended Dec. 31, 2023. General administrative costs fell $18 million from the same period last year to $70 million.
“The strength in this quarter’s results with respect to our unit economics and operating efficiency give us license to be willing to add a little operating expense, whereas as I think we’ve been very cautious to do that until we could demonstrate [efficiency],” Chief Financial Officer Michael Linford said during Affirm’s Feb. 8 earnings call.
THE BIGGER PICTURE: While the buy now, pay later (BNPL) giant is pulling back on tech spend, it is posting growth in its operations.
The company reported revenue of $591 million, up 48% YoY, while its gross merchant payment volume was up 32% YoY to $7.5 billion, according to the Q2 earnings report.
“It’s just been a story of success and we still have a lot of things that we have not scaled out,” which will help the company drive revenue even higher, Chief Executive Max Levchin said during the earnings call.
The company has also tightened its underwriting processes in the face of changing market conditions, he said.
Affirm’s stock price dropped by 12% on Friday trading to $43.81 at 3:53 p.m. as analysts and investors were expecting stronger earnings from the company, Robert Wildhack, U.S. capital markets specialty financials analyst at Autonomous Research, told Bank Automation News.
“I don’t think they can do exponential growth,” as in past quarters as the BNPL marketplace is getting crowded, Wildhack said, noting that, despite such headwinds, the company is growing by 30% in revenue on average — sizably more than e-commerce giants.
BY THE NUMBERS: In Q2, Affirm reported;
- Revenue, excluding transaction costs, of $242 million, up 68% YoY;
- Transactions per customer of 4.5, up 24% YoY; and
- Active customer growth of 16% YoY to 17.1 million.
WHAT THEY ARE SAYING: According to a January report by Juniper Research, a data intelligence company, global BNPL transaction value will more than double in the next four years, from $334 billion this year to $687 billion in 2028.
“Insider Intelligence/eMarketer predicts that nearly two-thirds of BNPL users will be millennials and Gen Z,” Marqeta’s Chief Revenue Officer Todd Pollak told BAN. “I predict we’ll also see more widespread adoption of BNPL across generational segments.”
Gen Z consumers primarily use BNPL for practical, smaller purchases, such as clothing, Pollak said, while older generations are more likely to use it for big-ticket items.
Marqeta found that restaurant and bar spending via BNPL grew tremendously in the past year, up 45% for last two weeks of December 2023 compared to the same period in 2022, Pollak said.
Block, a payments company, reported $129 million in revenue from BNPL services in Q3, down 8% YoY, according to the company’s November earnings report.
NOTEWORTHY: Affirm’s card offering generated record revenue during the quarter.
“The card had really strong growth from [fiscal] Q1 to Q2,” partly driven by seasonality, Levchin said.
The Affirm Card, rebranded in July 2023, allows consumers to make purchases and pay for them in installments. It generated $397 million in payment volume in Q2, up 77% sequentially, according to the company’s earnings report.
The number of active card users increased 75% sequentially, to nearly 700,000, the earnings report stated.
Affirm joined forces with Amazon Pay in June 2023, to become the e-commerce giant’s primary BNPL provider.
FUTURE LOOK: Affirm aims to launch additional features for the card throughout the fiscal year, including a rewards program that will give users a reason to use the card for “all transactions, not just considered purchases,” Levchin said.
The company plans to team up with retailers to give card users the option of BNPL at point of sale, Levchin said.
In addition to Amazon, Expedia, Target, Walmart and Gucci are a few retailers that provide Affirm’s BNPL checkout to customers, according to the company’s website.
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