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Affirm (AFRM) Q1 Earnings Miss on Higher Costs, GMV View Raised

Affirm Holdings, Inc. AFRM reported a first-quarter fiscal 2024 adjusted break-even per share, which missed the Zacks Consensus Estimate of an earnings of 8 cents. However, the bottom line significantly improved from the prior-year quarter’s loss of 86 cents per share.

Net revenues amounted to $496.5 million, which rose 37.3% year over year in the quarter under review. The top line beat the consensus mark by 11.6%.

The weaker-than-expected quarterly earnings were caused by higher operating expenses. Also, a decline in servicing income affected the results. The negatives were partially offset by increased merchants, GMV, transactions and interest income.

Affirm Holdings, Inc. Price, Consensus and EPS Surprise

Affirm Holdings, Inc. Price, Consensus and EPS Surprise
Affirm Holdings, Inc. Price, Consensus and EPS Surprise

Affirm Holdings, Inc. price-consensus-eps-surprise-chart | Affirm Holdings, Inc. Quote

Q1 Performance

Active merchants climbed 8.7% year over year to 266,300. The Gross Merchandise Volume (GMV) of $5.6 billion improved 28% year over year and beat the Zacks Consensus Estimate by 4%. Total transactions jumped 41.4% year over year to $18.8 million in the quarter under review.

Servicing income was $20.2 million, which decreased 5.7% year over year and missed the Zacks Consensus Estimate by 11.2%. However, interest income surged 92% year over year to $262.7 million, beating the consensus mark by 14.2%.

Merchant network revenues of $146 million increased 29% year over year in the first quarter of fiscal 2024. The figure outpaced the Zacks Consensus Estimate by 10.4%. Card network revenues improved 25.3% year over year to $33.5 million.

Total operating expenses of $706 million escalated 8.8% year over year due to a rise in funding costs, processing and servicing expenses. Also, provision for credit losses jumped 55.2% year over year to $99.7 million. However, loss on loan purchase commitment declined 2.1% year over year to $34.9 million in the quarter under review.

Affirm reported a net loss of $171.8 million, which was narrower than the year-ago quarter’s $251.3 million.

The adjusted operating margin was 12.1% in the September quarter, while the metric stood at negative 5.1% in the prior-year quarter.

Financial Position (as of Sep 30, 2023)

Affirm exited first-quarter fiscal 2024 with cash and cash equivalents of $1.1 billion, which improved from $892 million at fiscal 2023-end. Total assets of $8.4 billion increased from $8.2 billion at fiscal 2023-end.

Funding debt amounted to $1.7 billion, which increased from $1.8 million as of Jun 30, 2023. Total stockholders’ equity was $2.6 billion at the September quarter-end, up from the fiscal 2023-end level of $2.5 billion.

In the three months ended Sep 30, 2023, AFRM’s cash from operating activities came in at $98.9 million, up from $51.2 million in the prior-year period.

2Q24 Guidance

Affirm anticipates second-quarter fiscal 2024 GMV to be $6.7-$6.9 billion. Revenues are expected to be $495-$520 million. Transaction costs are estimated between $310 million and $320 million. The weighted average shares outstanding are expected to be 308 million. It expects adjusted operating margin to be within 2-4%.

FY24 Guidance

The company expects to reach full fiscal 2024 profitability on an adjusted operating income basis, which will be a significant milestone. As it is including consumers’ student loan balances in underwriting decisions, the resumption of repayments will likely bring a modest headwind to its GMV level.

Affirm forecasts fiscal 2024 GMV of more than $24.25 billion. Revenues, as a percentage of GMV, are expected to be similar to the fiscal 2023 level of 7.9%. The adjusted operating margin is anticipated to be more than 5%, while the weighted average shares outstanding are likely to be 311 million.

Zacks Rank

Affirm currently has a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Business Services Sector Releases

Here are some companies from the Business Services space that have reported earnings for the September quarter: Visa Inc. V, Mastercard Incorporated MA and The Western Union Company WU.

Visa reported fourth-quarter fiscal 2023 earnings of $2.33 per share, which beat the Zacks Consensus Estimate by 4.5%. Its strong quarterly results benefited on the back of increased payments, cross-border volumes and processed transactions. Steady cross-border travel growth, resilient consumer spending and higher-than-expected data processing aided the results, partially offset by increased costs and client incentives.

Mastercard reported third-quarter 2023 adjusted earnings of $3.39 per share, beating the Zacks Consensus Estimate by 5.6%. The quarterly results gained from strong consumer spending and solid growth in travel and non-travel cross-border spending. The rise in switched transactions also contributed to the quarterly results.

Western Union reported third-quarter 2023 earnings per share of 43 cents, which outpaced the Zacks Consensus Estimate by 13.2%. Its earnings were supported by strength in the Middle East business, Evolve 2025’s momentum and transaction growth. However, the discontinuation of operations across Russia and Belarus, promotional pricing activities and higher expenses partially affected the results.

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