Affirm CEO Says They Own Half of US Pay Later Revenue

Against a backdrop where it laid claim to a third of the volume and more than half of the revenue in the United States pay later space, Affirm reported better-than-expected key performance indicators and projected strong holiday consumer spending during its fiscal first quarter conference call Thursday (Nov. 7) after the markets closed.

The company notched double-digit gains in active customers and merchant counts. Transactions per active consumer grew 25% year over year to 5.1. Company materials, including the latest shareholder letter penned by CEO Max Levchin, showed that gross merchandise volume (GMV) grew 35% year over year to $7.6 billion, where management noted that the company “significantly outpaced” overall eCommerce.

By spending category, Affirm noted that the company saw double-digit growth across the board as measured by GMV, with the exception of slight declines in sporting goods and outdoors. The general merchandise category grew 47%; the electronics, and equipment and auto categories all grew in excess of 25% year over year.

Total revenues were  41% higher to $698 million and grew to 9.2% of GMV, where that percentage had been 8.8% a year ago. The company’s active consumer count was up 21% year over year to 19.5 million, and the active merchant count surged 21% to 323,000.

Shares declined about 3% in after-hours trading Thursday, having nearly doubled since the summer months.

Affirm Card Shows Momentum

Within its direct-to-consumer efforts, Affirm Card (a Visa debit card) generated $607 million in GMV, up 20% from the fiscal fourth quarter and up 171% year over year. The company has exceeded 1.4 million cardholders, up 19% quarter on quarter. Annualized GMV per user grew from $2,500 to over $3,000 and in-store usage grew from approximately 25% earlier in the fiscal year to the most recent quarter showing of 45%.

During the call with analysts, when asked about the improvements in revenue as measured as a percentage of GMV, Levchin said that “the business continues to have really strong unit economics,” as the company has been earning more in interest income and also from merchant fees.

Asked on the call about capital and funding activities — where the shareholder letter showed a boost in funding capacity to $16.8 billion in the most recent quarter, from $16.1 billion in the fourth quarter — Levchin observed that “the market for … whole loan purchasers is really strong right now. The credit performance that we’ve delivered over the past year and a half,” and added that “the supply side of that capital with trends like the private credit have created an environment that’s very good for us. So we will continue to benefit from that.”

The UK’s Potential

With a nod to the recent launch into the United Kingdom, Levchin said that the longer-term payment horizons — over three, six, 12 months and beyond — for larger ticket items “is not well served in the U.K.,” said Levchin “and people there need their prams and their couches and their TVs just as much as they do” anywhere else, “and right now the only competitors in that space are the banks.”

Affirm, he said, “has a huge competitive moat — underwriting is a very difficult thing to do. You have to have massive infrastructure to mine the data that you get. It’s not enough to have and store the data. You actually have to know what to do with it.”  

Analysts asked about regulators’ increased scrutiny on sponsor banks and whether that might impact the aforementioned growth of Affirm Card. Levchin contended that “regulatory scrutiny increasing is a thing you experience if you’re small and unknown to the regulators. We’ve been big in getting much bigger quarter after quarter. We’re very familiar with all our regulators. We engage with them regularly. We have invested in compliance appropriately. … We’re not dependent on any one provider.”

Headed Into the Holidays

Looking ahead, management observed that 0% promotions are seeing strong interest from merchants headed into the holiday months. 

“We are in a process of harmonizing our financial programs, which is the fancy term we use for various promos, across fixed APRs, reduced APRs, 0% APRs. You will see consistency across multiple channels — card and digital wallets included,” said the CEO.

“We’re firing on all cylinders, and we’re getting ready for a really good holiday season,” Levchin told analysts.

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