Affirm Earnings Yesterday

I’m still waiting on a transcript but the top line numbers do not look so great to me. They reported $204 mm in revenue, a 17% increase from last quarter. On the surface, that sounds quite good!

But if you look at Q4 2019 and 2018, they grew 48% and 35% QoQ respectively. So this quarter, seasonally speaking, was a rapid deceleration in revenue from prior Q4’s. I don’t know what, if any excuse, there would be for this. If anything, AFRM should have had a stronger Q4 since the holiday shopping season started earlier. Other companies with seasonally strong Q4 have done quite well this year, such as PINS and MGNI. I wonder though if PINS/MGNI may be outliers, and perhaps this bad Q4 that Affirm had foretells a poor Q4 for ecommerce plays such as SHOP and ETSY.

Additionally, and this is maybe where I could use some assistance, their margins are not so great relative to our SAAS companies. They don’t report our beloved metric, Non-Gaap Adjusted Margins, but they did report “Total revenue less transaction cost” of $89mm. This means transaction cost was $114m in the quarter (revs of $204 minus revs_less_transaction_cost of 89mm equals $114mm). So gross margin is just Cost of Goods Sold divided by sales. If we treat transaction cost as cost of goods sold (and, for sure, maybe I am wrong to do this - any one with more expertise in these matters please let me know), we can approximate gross margin equals 89mm divided by $204mm, or 56%.

Additionally, they are guiding for negative revenue growth in Q1. In Q1 2020 and Q1 2019, they grew at 6% and 5% respectively.

I was excited about AFRM, but the reality is that we have a company with already weaker gross margins than our board favorites, customer concentration risk (Peloton), decelerating revenue (big time), and weak guidance.

I had initially taken a 1-2% trial position in this company a few weeks ago but should probably sell out.


Thanks for your post. I have watched some of these companies pop up, and I don’t really understand the barrier to entry on the whole field. The idea of splitting payments up isn’t really new. Dozens of small companies seem to be doing essentially the same thing. Big companies like American Express, Chase and Citigroup have jumped on the bandwagon. How long before offering split payments is an assumed service that a majority of businesses offer, like accepting credit cards? But the ubiquity and ease of creating and offering it could have enough competition that margins and fees the fintechs are able to charge shrink to negligible amounts.

Why go through a specific company’s payment plan, or attempt to seek out merchants offering such plan, which seems to be the draw for merchants to sign up. Every credit card company you already do business with can offer a split-pay convenience without having to build a separate network, lure in customers or rely on a network effect to build a sustainable scale. They have the relationships already and people have the cards in their wallets now.

I’m interested in the Fintech space, but I don’t understand enough about how this particular segment of it can really justify itself as a long-term pure-play with enough competitive advantage to sustain good growth or margins.




You bolded the following:gross margin equals 89mm divided by $204mm, or 56%.

I followed your argument until here, but $89 divided by $204 is 43.6%, not 56%. Did I miss something?


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I read somewhere that they’ll be affected by how Peloton recognizes revenue. Since Peoloton is a concentrated customer for them, I’d imagine this is the reason for negative revenue growth.


Yes you are correct, @BruceDavis. What I should have said was that we are approximating cost of goods sold to be 204-89 = 114. So then gross margin would be 114/204, which is 56%. Thanks for catching that. I prefaced it that I would need help with that and I did, just not for the reason I thought I would lol.

Also, @JustinFields was sort of asking “Why use Affirm?” I had read a long deep dive by Bert Hochfeld where he pretty much explained that the secret sauce, allegedly, is in the algorithm that Affirm uses to intelligently approve more people than other companies.

If it was simple and easy to offer a buy now pay later solution, they wouldn’t be able to win the notable customers they won such as Shopify, Peloton, and Walmart. Especially Shopify, since it’s known to come up with cutting edge tech solutions to its own problems.

  • PTON is around 30% of Affirm revenue.
  • PTON changed from recognizing revenue at time of purchase to time of delivery.
  • Affirm revenue from PTON is delayed because of PTON’s change in revenue recognition.
  • PTON is spending up to $100 million for expedited shipping options in the coming months and expects their backlog to normalize in 6 months time.
  • Affirm revenue from PTON will jump for next 2 quarters if expedited delivery effort from PTON is successful.

I haven’t run the numbers, but the decline in growth rate makes sense without significant cause for worry.


Ok just to pick up on a bunch of points in this thread:

1) Peloton and merchant/client spread
Yes it’s a marquee client and provides 30% of revenues but my issue here is:
i) customer concentration risk and…
ii) this doesn’t do a lot for Affirm. Sure buying a Peloton bike or treadmill is a large purchase but it’s a one off - you aren’t going to make repeat purchases (assuming the subscription isn’t on Affirm). This is the opposite of what Afterpay and other BNPL players strive for which is high volume high frequency items or merchants with the opportunity for continued repurchasing.
Furthermore - Affirm pre Covid was concentrated in travel - again not a high frequency purchase basket and not exactly bouncing back. It also has a massive skew towards North America only (vs Klarna and Afterpay which are in Europe, ANZ and now in Afterpay’s case - SE Asia)

2) Growth and margins
Just to put Affirm’s 57% growth into context…
Affirm and Afterpay were at $500m each end of last financial year with the difference in USD vs AUD currency (30%)
In aggregate Afterpay is growing at over 100% (115% growth in underlying revenues - see Q1 business update) whilst Affirm is growing at 57%
Depending on whether you want to look at this on a group basis or US only basis then In the US alone where Affirm is effectively centred, Afterpay’s revenues are much lower than Affirm’s but is growing at 229% so about 4 x that of Affirm.
Revenue as a % of GMV are 10.6% for Affirm but less transaction costs they are 3.8% of latest 6 months. NTM for Afterpay is 2.3% of underlying sales. On margin at least Affirm performs well.

3) PayBright
The PayBright acquisition officially closed in January. This will add a kicker to the numbers but more to the point take Affirm into Canada in a big way. This was a great acquisition and will help them a lot.

4) Credit card and incumbent competitors
Part of the point of BNPL is that millennials and Gen Z are turning their back on credit cards as they see this as a generational fault of baby boomers and Gen Xers. Also Credit Card operators (not Visa and Mastercard but the actual financial service providers) have been offering instalment credit for years. It hasn’t done anything for them and certainly hasn’t prevented the rise of BNPL. Lastly Afterpay has deals with Mastercard and Visa in Aus and globally. So if the CC platforms are going to compete they will do it in partnership. Paypal is a genuine competitor and they are activating millions of merchants and customers right now but they too have had credit schemes for a long time and has gone nowhere

5) Shopify and eCommerce
There’s 3 aspects to this.
i) What the white label native Shopify Pay deal (now with the added facebook/instagram integration of Shopify Pay) will do for Affirm. I expect this to be a monster deal although I’m sure Shopify will be taking their cut. At the moment they are doing these deals on a geographic basis. Affirm was selected for US and PayBright for Canada. It remains to be seen whether they will go for Affirm for rest of world or whether they will go with Klarna or Afterpay who are much stronger outside North America (although Afterpay is massive in the US and Shopify still went with Affirm there).
ii) Shopify has a 10% stake in Affirm - so it is their interest I guess to instal Affirm within their ecosystem everywhere. They might even buy Affirm out at some point.
iii) The read across from Affirm to ecommerce and Shopify’s results. Here I don’t believe the Affirm 57% was a signal of anything. If we look at Afterpay - they grew their Q1 2021 revenues (calendar Q3) by an accelerated rate at over 100%. eBay, Amazon and Ali Baba all released strong expectation beating results. I believe this is an Affirm issue not a Shopify issue.



For those interested in the uptake potential of BNPL, here’s an account of how consumer purchasing adoption progresses.

I know Saul exited Afterpay as it seemed too focused on apparel and cosmetics/beauty but that is usually just the first phase of adoption.

Here’s the next frontier for Afterpay but the analogy also applies to the rest of the BNPL sector including Affirm.…