Affirm Hits Speed Bumps, Slashes Staff as Consumer Demand for BNPL Decelerates

For Affirm, growth is still in the mix, and demand is still there for buy now, pay later. 

But the growth rates are decelerating, leading the company to slash staff and to shutter some operations — notably its crypto initiative. 

The company also noted in its earnings materials a sequential decline in active merchants offering BNPL as the smallest merchants in its pantheon churn. 

Investors were quick to send the stock down about 18% after hours.

A deceleration in consumer demand and, in some cases, outright declines in spending on discretionary items slowed gross merchandise volumes growth rates to 27% in the FY 2023’s second quarter, whereas a year ago, that rate had been 115%. Active consumers grew 39% in the same period to 15.6 million; growth in that metric in the year ago FY 2Q was 150%, per company supplementals. Revenue growth was 11%, at $400 million, and had been 77% last year.

Pressures on Discretionary Spending

 As for the categories that had been seeing a pullback: CEO Max Levchin said in a letter to investors that sporting goods and outdoor categories were down 49% year over year (due to a decline in Peloton GMV), the electronics category was down 11% year over year, while the home and lifestyle category (which includes items such as furniture) grew just 2% year over year.

Folks are digesting the purchases they made during the pandemic, management said.

The active merchant accounts were 243,000 in the most recent period, down from 245,000 in the fiscal first quarter. Merchants with trailing 12-month GMV of less than $1,000 declined, to 153,000 from about 157,000 in the fiscal first quarter. That was offset by the merchant base with greater than $1,000, management said, which is the vast majority of the total, at 99% of total GMV, up 61% year over year.

There were some bright spots in the mix: Engagement metrics improved, as transactions per active consumer grew 38% year over year to 3.5; 86% of transactions were from repeat customers. 

Credit metrics improved, as delinquencies fell on a sequential basis. The supplementals show that the 30-day delinquency rate stood at 2.4%, down from 2.7% in the September quarter.

Levchin noted on the call that the 19% reduction in staff reflected efforts to refocus on core business (i.e., its borrowing costs) and pacing headcount growth behind that of revenue growth. And during the conference call, the CEO said that the company had increased pricing for its merchants and consumers later in the year than it should have. The Shopify partnership remains intact with significant opportunity ahead, and CFO Michael Linford noted on the call that in reference to the Amazon pact (where exclusivity was in place till the end of the month), Affirm still has “meaningful exposure” and there is still GMV that is “underpenetrated vs. Amazon’s share of eCommerce.”

“We would probably say we’re in the midst of the biggest moments of volatility from a macro sense,” Levchin said. 

And that volatility had boosted its costs, with a larger team in place than could be supported. Guidance implies a further slowing down, as $360 million to $380 million in top line for the current quarter would be mid-single-digit percentage points at the midpoint from a year ago.

In looking ahead, he noted that “merchants, and Affirm, are keen on more volume. … We are fundamentally governed by yield and risk management. So we must maintain the risk frameworks that we’ve signed up with our capital partners.”

And as the CEO told investors, with an eye on volume, “These are not transactions that will disappear forever, but they’re probably going to remain muted for what we expect is at least a few quarters.”