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Confirmed shares up 34% after earnings ‘put up some ongoing bear themes’

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Shares of Affirm Holdings rose in after-hours trading Thursday after the buy now, pay later company posted a revenue win and sought to reassure investors about its position in a downturn.

Revenue in Affirm AFRM,
+ 23.31%
It rose to $354.8 million in the fiscal third quarter from $231 million a year earlier, while analysts were modeling at $344 million.

The company processed $3.9 billion in gross merchandise volume (GMV) in the quarter, up 73% from the previous year. Analysts had expected $3.85 billion.

“Our strong performance demonstrates our ability to drive growth with attractive unit economies, despite volatile market conditions,” Chief Financial Officer Michael Linford said in a statement.

Confirmed shares of the company were up 34% in aftermarket trading on Thursday, after a 23% rise in Thursday’s regular session.

“After a great deal of concern, the F3Q’s very strong results should offer a huge sigh of relief,” Mizuho’s Dan Dolev wrote in a note to customers.

Amid the recent market turmoil, fintech names have been hit particularly hard, and Affirm shares have fallen about 61% over the past three months, in part due to concerns about the fate of credit-oriented business in a downturn.

CEO Max Levchin appears to be addressing those concerns on the company’s earnings call.

Because Affirm does not charge a late or rolling fee, “we have a structural incentive to reject a transaction that we think is a bad financial decision for you because agreeing to it is guaranteed to be a bad financial decision for us,” he said.

Lifchin also called for a “very short weighted average life” of Affirm’s loans, which he said was about five months. This means that “as the economic cycle changes, the loans we have made in the past will have a rapidly diminishing effect on Affirm’s future financial performance,” he continued.

Affirm expects people will be more interested in the idea of ​​paying for items over time without incurring late fees during an economic downturn, but Lifchin said that while the company intends to “improve people’s lives,” it also aims “only to expand credit that we think can be done.” Pay it off and it will be paid back.”

Linford added that Affirm is “really satisfied” with its standing in terms of capital commitments.

“We’ve seen the whole change in the total market, that it changes rates, it changes spread, but the asset underneath, the asset that we create, is still something that all of our equity partners understand and value,” he said in Communicate.

Ramsey El-Assal, an analyst at Barclays, entered some of Affirm’s financing comments in a note after the report.

“They indicated they had a financing capacity of more than $10.1 billion at the time of the call (May 12) and had recently received an AAA rating for certain securitized debt,” he wrote. Although Al-Assal noted that Affirm acknowledged that the increased interest rates could eventually flow into the cost of financing, he highlighted management’s assertion that it was “a mistake to think of this as a full-fledged inflow on a linear basis.”

In the summary, Al-Assal emphasized “raising some of the bear’s fixed themes.”

For the June quarter, Affirm expects $3.95 billion to $4.05 billion in GMV, while analysts expected $3.97 billion. The company also expects revenue between $345 million and $355 million for the June quarter, while the consensus for FactSet was $352 million.

“Avirm’s plan is to achieve a sustainable operating rate of profitability on an adjusted basis by the end of the next fiscal year,” Levchin added on the call.

Al-Assal suggested that the company’s discussion of long-term goals after the current quarter looks good with Wall Street.

“Importantly, management indicated that the company will reach break-even profitability by July 2023, which is closer than investors expected, we believe, and also said that there will be no need to issue shares before the company reaches break-even profitability,” he wrote in his note to clients.

In the most recent quarter, the company reported a net loss of $54.7 million, or 19 cents a share, compared to a loss of $287 million, or $1.23 a share, in the same period a year earlier. Analysts tracked by FactSet expected a loss of 46 percent per share.

The company also shared in its earnings statement that it has reached a multi-year extension at Shopify Inc. SHOP,
+ 10.96%
Partnership, meaning Avirm will be the exclusive provider of “Pay over Time” technology for the company’s Shop Pay installment product in the United States.

Affirm stock is down 82.1% YTD through Thursday, while the S&P 500 SPX,
-0.13%
It has decreased by 17.5%.

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