💳 How Much Is Affirm’s Prevarication Worth?

Big investors load up on Peloton.

Hey Global Investor! Here’s what you need to know before the US markets open.

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💳 Affirm: Prevarication Or Genuine Mistake?

If 2021 was about IPO frenzy, 2022 seems to be about these IPO success stories unraveling in a frenzy! Affirm (AFRM), the Buy Now Pay Later pioneer, was the first IPO of 2021. After shooting up in the initial months, the shares are below the IPO price. What gives? (Tweet This)

Experiments With Truth

Affirm was supposed to report its quarterly earnings after the closing bell on Thursday. However, due to “human error,” parts of the results were inadvertently tweeted at 1:30 PM ET itself. The tweet said the company’s revenue had grown 77% Y-o-Y (Vs. 61% growth expected by analysts).

A half-truth is even more dangerous than a lie. 

That “human error” triggered a 12% rise in share price to $83, adding $2.5B to Affirm’s market cap. The company then released its full results at 2:48 PM ET. The earlier tweet was deleted.

The fineprint showed a wider-than-expected loss per share even as revenue grew. That was enough for the shares to drop from $83 to $50, shedding over $11B in market cap. After two successive days of shares shedding 20%, the stock fell another 6% on Monday.

Key Highlights From Q2 FY22:

  • Revenue: $361M Vs $328.8M expected
  • Loss Per Share: $0.57 Vs $0.32 expected

In Q2, net loss jumped to $159.7M from $26.6M during the same period last year. Increased stock-based compensation post IPO and an additional expense of $34M related to its PayBright acquisition.

Affirm’s Gross Merchandise Volume (GMV) received a boost after its deal with Amazon. Affirm will remain the only provider of BNPL services to Amazon until January 2023. It will also be integrated into Amazon Pay’s digital wallet in the US.

GMV in Q2 rose 115% year-on-year to $4.5B (Vs. $3.73B expected). Active merchants increased to 168K from 8K, primarily led by merchants’ adoption of Shop Pay Instalments on Shopify’s platform. Active consumers grew 150% to 11.2M, compared to September 30, 2021.

The company also estimated that it facilitated 1.6% of the total online transaction volume for the Black Friday and Cyber Monday period in the US.

Regulation On The Anvil?

For the current quarter, Affirm expects revenue of ~$330M and GMV of $3.66B. Both the numbers are lower than their Q2 results. For the full fiscal year, Affirm’s expected revenue is ~$1.30B and GMV of ~$14.68B.

The management was quick to affirm that no merchant partner contributed more than 10% to its overall GMV. That was obviously an oblique reference to the beleaguered Peloton Interactive Inc, which Amazon has now replaced as Affirm’s largest merchant partner.

During the go-go IPO frenzy last year, investors pumped up anything they could lay their hands on without worrying too much about the risks. And so, it didn’t matter that a third of Affirm’s revenue came from Peloton. As a result though, whenever Peloton was in the news for unwanted reasons, Affirm’s shares would inevitably get thrashed.

Separately, regulators started taking note of BNPL as a business model. At issue was consumers taking on unsustainable levels of debt. Sweden’s Klarana was rapped on the knuckles by the UK’s Advertising Standards Authority for irresponsible advertising.

Affirm, Australia’s AfterPay and Zip, along with Klarana were asked by the US Consumer and Financial Protection Bureau in December last year to provide more information on their business practices, citing concerns over mounting losses and accumulation of debt.

This attention from regulators is for a good reason. Data suggests that one-third of the millennials who have used BNPL have been charged late payment fees. BNPL players, however, insist they’re less predatory than credit cards, who, on average, charge over 20% interest per year.

Not only did Affirm’s “human error” cost the company over $10B in market value, there was also angst that in the six quarters since going public, the company still seems far away from being profitable.

Shareholders took to social media to call out the company for its folly. One of the users wrote about losing $50K as he positioned himself on the stock in anticipation of the company reporting results after-hours and not during regular trading.

Affirm’s shares are now down 75% from their 52-week high of $176.65 in November last year. Amazon might be an important partner now, but it seems the investors are looking for some more affirmation, which appears nowhere in sight, just like its profits.

Market Reaction
AFRM ended at $43.70, down 6.12%. Shares are down 47% from Thursday’s high.

Company Snapshot 📈

AFRM $43.70 -2.85 (6.12%)

Analyst Ratings (14 Analysts) BUY 57%  HOLD 36%  SELL 7%

Newsworthy 📰

Buying The Dip: Some big investors loaded up on Peloton as stock tumbled (PTON -5.33%)

Foresight?: Buffett’s Berkshire bought about $1B worth of Activision shares before Microsoft deal (BRK.A -1.42%)

Offer: Splunk jumps amid reports that Cisco wants to buy the software company (SPLK +9.13%)

Later Today 🕒

  • Airbnb Inc. Earnings (ABNB)
  • Baidu Inc. Earnings (BIDU)
  • ViacomCBS Inc. Earnings (VIAC)
  • Devon Energy Corp. Earnings (DVN)
  • Roblox Corp. Earnings (RBLX)
  • Wyndham Hotels & Resorts Inc. Earnings (WH)
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  • Armour Residential REIT Inc. Earnings (ARR)
  • Huntsman Corp. Earnings (HUN)
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  • Marriott International Inc. Earnings (MAR)
  • Restaurant Brands International Inc. Earnings (QSR)
  • Royalty Pharma Plc. Earnings (RPRX)
  • SolarEdge Technologies Inc. Earnings (SEDG)
  • Toast Inc. Earnings (TOST)
  • Upstart Holdings Inc. Earnings (UPST)

Today’s Market Terminology: Graduated Payment

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