Affirm to lay off 19% of staff, stock tanks after earnings disappointment

Affirm Holdings Inc. announced plans to cut 19% of its staff Wednesday following an earnings report in which the buy-now-pay-later company came up shy with both its results and outlook.

“The root cause of where we are today is that I acted too slowly as these macroeconomic changes unfolded,” Chief Executive Max Levchin told employees in a note about the layoffs that was also shared to Affirm’s

corporate site.

“Growing rapidly over the last few years, and especially through the pandemic, we consciously hired ahead of the revenue required to support the size of the team,” Levchin said, but rising rates have dampened consumer spending levels and upped Affirm’s cost of borrowing.

Affirm had 2,552 employees as of June 30, 2022, according to its latest 10-K filing.

“We will emerge from this moment a tougher, leaner team, while remaining unwaveringly true to our mission of improving lives through honest financial products,” Levchin said in Affirm’s shareholder letter.

Shares were off 17% in extended trading Wednesday.

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The company generated a fiscal second-quarter net loss of $315 million, or $1.10 cents a share, compared with $158 million, or 57 cents a share, in the year-prior quarter. Analysts tracked by FactSet were expecting a 95-cent loss per share on a GAAP basis.

Affirm’s revenue rose to $400 million from $361 million a year ago, while analysts were modeling $416 million.

“A key operational misstep contributing to these results is that we began increasing prices for our merchants and consumers later in the year than we should have, and this process has taken us longer than we anticipated,” Levchin said. “This had a negative impact on both our ability to approve more consumers and improve our margin.”

In the company’s shareholder letter, he admitted to learning “a valuable (and expensive) lesson in network management,” though the “pricing initiatives are now starting to produce results.”

The company recorded $5.7 billion in GMV, up from $4.5 billion a year before, whereas the FactSet consensus was for $5.8 billion. GMV represents the dollar amount of transactions done through Affirm’s platform.

Revenue less transaction costs, a metric that the company says measures the economic value of the transactions it processes, fell 21% from a year before to $144 million. RLTC was 2.5% of GMV.

Mizuho analyst Dan Dolev summed up the results in a note titled: “Disappointing.”

“The primary disappointments were missing the low end of the GMV guide along with a step-down in RLTC as % of GMV…with a healthy decline in the FY guidance.”

For the fiscal third quarter, Affirm executives expects $4.4 billion to $4.5 billion in GMV, along with $360 million to $380 million in revenue. The FactSet consensus is for $5.28 billion in GMV and $418 million in revenue.

For the full fiscal year, Affirm anticipates $19.0 billion to $20.0 billion in GMV and $1.475 billion to $1.550 billion in revenue, whereas its prior outlook was for $20.5 billion to $21.5 billion in GMV and $1.600 billion to $1.675 billion in revenue,

Affirm is now “delaying projects with less certain revenue timelines,” “sunsetting” certain projects like a crypto initiative, and refocusing on its core areas, according to Levchin’s letter.