Affirm earnings: What to expect from the buy-now-pay-later company

The buzz around BNPL has faded since the technology was the talk of the e-commerce world early on in the pandemic. Affirm’s
AFRM,
-3.43%
Wednesday afternoon earnings report will show how the pure-play operator has been faring in this new reality, and also how credit has held up given a rockier economic climate. Affirm executives, for their part, have maintained that the company’s loans with shorter payback periods help mitigate some of the credit impact that other lenders may see.

While the company rode Peloton Interactive Inc.’s
PTON,
-0.89%
surging popularity during lockdowns, thanks to a partnership between the two businesses, Affirm has since had to adjust to Peloton’s abrupt demand slowdown. Affirm executives blamed weakness at this “large merchant partner” for their lowered outlook in their last shareholder letter.

Wall Street has heard from Peloton since then: The maker of connected fitness equipment notched a sizable revenue beat when it delivered holiday-quarter results earlier in February, though its CEO called out that subscription revenue trumped hardware revenue in the period.

Here’s what to expect from Affirm’s fiscal second-quarter earnings report, due out after Wednesday’s closing bell.

What to expect

Earnings: Analysts tracked by FactSet expect Affirm to post a GAAP loss of 95 cents a share for the December quarter, compared with a loss of 57 cents a share a year earlier.

Revenue: The FactSet consensus is for $416 million in December-quarter revenue, up from $361 million a year before.

Stock movement: Affirm shares tend to make big swings after earnings: They’ve logged double-digit percentage moves in all but one of the company’s eight earnings reports as a public company. Shares have fallen following five of the company’s eight earnings reports.

Affirm’s stock has fallen 73% over the past 12 months, though it’s up 80% so far this year. The S&P 500
SPX,
-0.90%
has risen 8% to start 2023.

Of the 22 analysts tracked by FactSet who cover Affirm’s stock, nine have buy ratings, 10 have hold ratings, and three have sell ratings, with an average price target of $17.75.

What else to watch for

Though the mood of the consumer seems soft right now, RBC Capital Markets analyst Daniel Perlin recently noted that Affirm has the potential to benefit from share gains.

“While data suggests retail sales have decelerated this quarter y/y, we believe AFRM has offset weakness through its exposure to enterprise retailers, continued market share gains, and potentially increased consumer demand for flexible spending products to manage inflation to achieve our GMV [gross merchandise volume] estimates,” he wrote.

Still, he acknowledged that “loan losses and provision for credit loss will likely increase, given macro economic uncertainty and the expectation of increasing delinquencies.”

Morgan Stanley’s James Faucette highlighted the strong rally in Affirm’s stock to start the year, though he still thinks that “investors broadly are very cautious on Affirm’s ability to manage through numerous macro risks and are skeptical of the target to be adjusted operating profitable by the June [quarter].”

He expects that Wall Street will remain focused on the company’s loan performance, access to capital, funding costs, mix of volume, and strength of originations.

Affirm shares got a boost in the summer of 2021 after the company announced a partnership with Amazon.com Inc.
AMZN,
-2.00%,
but Barclays analyst Ramsey El-Assal will be looking for updates on how that is playing out. Among his areas of focus for the earnings call are “expectations for the AMZN partnership following the launch of 0% loans and the recent end of AFRM’s exclusivity as AMZN’s BNPL option.”