Affirm Holdings, the leading buy now, pay later company, saw a surge in its stock price during after-hours trading following its impressive fiscal fourth quarter results. The company's revenue jumped by a remarkable 22%, leading to an increase of over 12% in its shares after the market closed on Thursday.
In the face of concerns surrounding a slowing economy and weakening consumer credit, investors were particularly encouraged by Affirm's ability to maintain its momentum. CEO Max Levchin expressed his pride in the company's performance and the dedication of its team in a letter to shareholders. He acknowledged the existence of macroeconomic headwinds and anticipated future challenges, but maintained confidence in Affirm's expertise and determination to overcome them.
For the quarter ending on June 30th, Affirm reported a loss of $206 million, equivalent to 69 cents per share, alongside revenue of $446 million. These results surpassed analysts' expectations, with FactSet survey data indicating an anticipated loss of 88 cents per share on revenue of $406 million. In comparison, during the same quarter last year, Affirm reported a loss of 65 cents per share from $364 million in revenue.
Despite some analysts cooling their outlook on the stock, Affirm shares have soared by an impressive 42% this year. As reflected in FactSet's survey, only 25% of analysts currently rate the shares as a Buy, while 50% consider them a Hold, and the remaining 25% have assigned Sell ratings.
Affirm's Business Model Impresses Despite Market Sentiment
The current economic landscape has left many investors skeptical about the viability of Affirm's business model. With concerns of a potential recession, rising funding costs, and consumers facing financial strain due to inflation and higher interest rates, sentiment in the market has been bearish.
However, Affirm has been able to weather the storm quite well. The company's funding capacity has actually increased by $300 million to reach an impressive $11.7 billion since the end of the previous quarter. Additionally, Affirm reported a decrease in the share of credit overdue by 30 days or more by 0.3 percentage point to 2.3%, excluding purchases of Peloton equipment and its pay-in-four product.
One of Affirm's key strengths lies in its unique approach to credit approvals. Unlike traditional credit-card issuers who provide consumers with a line of credit that can be used for any purchase, Affirm carefully evaluates credit outcomes on a transaction level. This allows them to tailor credit terms accordingly, resulting in a better understanding of credit risks.
Looking ahead, Affirm is optimistic about its financial outlook for the fiscal first quarter of 2024. The company expects to achieve revenue between $430 million to $455 million, with a projected gross merchandise volume ranging from $5.3 billion to $5.6 billion.
Despite initial skepticism, it seems that Affirm's business model is proving to be resilient in challenging economic times. As the company continues to demonstrate its ability to adapt and thrive, investors may begin to reassess their sentiment and recognize the potential value that Affirm offers.
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