Sign in

    Affirm Holdings Inc (AFRM)

    Q4 2024 Earnings Summary

    Reported on Mar 17, 2025 (After Market Close)
    Pre-Earnings Price$31.58Last close (Aug 28, 2024)
    Post-Earnings Price$39.11Open (Aug 29, 2024)
    Price Change
    $7.53(+23.84%)

    What went well

    • Affirm's upcoming integration with Apple Pay positions the company to reach a broader audience through the world's most popular phone and wallet, potentially driving significant growth.
    • Affirm demonstrates strong control over credit risk and underwriting, leading to improved credit outcomes and profitability, even in changing economic conditions.
    • Innovations like the Affirm Card and new products such as Pay-in-2 and Pay-in-30 are expected to increase consumer engagement and spending, with plans to offer tailored features to different customer segments.

    What went wrong

    • Affirm's new partnerships and initiatives, such as the Apple Pay integration, are not expected to be material in the near term, which could limit growth potential. Michael Linford mentioned that these opportunities "could take a few quarters to roll out and therefore, have more uncertainty," indicating they may not significantly influence the fiscal year's trajectory.
    • Potential economic downturn could adversely affect Affirm's credit approvals and growth. Michael Linford acknowledged that if lower rates are accompanied by a loosening labor market, "we, of course, would need to take into account that as we think about where we set approvals," which could impact growth and approval rates.
    • The upcoming CFO transition may introduce execution risks. With CFO Michael Linford taking on the role of COO and Robert O'Hare expected to become CFO by the end of the fiscal year, this leadership change could present challenges during a critical growth period.

    Q&A Summary

    1. Fiscal 2025 Guidance & New Initiatives
      Q: How does 2025 guidance reflect new initiatives like Apple Pay?
      A: Management explains that their fiscal 2025 guidance is conservative by design, excluding potential upside from new initiatives like B2B and wallet partnerships, including Apple Pay, which are not yet material to their outlook. They require these initiatives to contribute hundreds of millions or even a billion dollars before considering them material. Any material impact from these initiatives would be upside to their current guidance.

    2. Impact of Falling Interest Rates
      Q: How will falling rates affect the business?
      A: Affirm benefits from not being tied to fixed credit card rates; as interest rates fall, they can approve more customers and offer better pricing in real time. However, the effect on funding costs is gradual due to stickier funding sources like fixed-rate ABS deals.

    3. Operating Leverage & Margin Expansion
      Q: What are the sources of operating leverage in FY '25?
      A: Management highlights significant progress on operating leverage, expecting to expand adjusted operating income margins by 200 basis points this year. This is driven by disciplined expense management and revenue growth, while balancing investments in growth opportunities.

    4. Apple Pay & Competitive Landscape
      Q: How does Apple Pay affect Affirm's position?
      A: Affirm views the partnership with Apple Pay as a recognition of the complexity and importance of buy-now-pay-later services. They believe their expertise in underwriting, merchant relationships, and technology differentiates them. The integration with Apple Pay is seen as an opportunity rather than a threat.

    5. Approval Rates & Funding Costs
      Q: Will lower rates boost approvals in 2025?
      A: While lower interest rates could improve approval rates by reducing funding costs, the effect is not immediate due to fixed-rate funding sources. Additionally, economic conditions accompanying rate cuts, like labor market pressure, could impact credit decisions.

    6. Customer Engagement & Growth
      Q: How is customer engagement evolving?
      A: Affirm is seeing increased engagement, with more repeat users and transactions per user. They segment customers to tailor financial products, like the Affirm Card, aiming to meet diverse needs and capture more spending.

    7. RLTC Performance & Outlook
      Q: What influences RLTC performance in 2025?
      A: Revenue less transaction costs exceeded expectations in Q4 due to a non-recurring $30 million benefit from a securitization. For 2025, RLTC is expected to remain stable, influenced by business mix, credit outcomes, and capital market execution.

    8. Plans to Become a Bank
      Q: Does GAAP profitability accelerate bank plans?
      A: Management states that becoming a bank is not necessary for their business model and is not currently part of their plans. GAAP profitability is a natural progression of their business without the need to become a bank.

    9. Volume Visibility & Repeat Users
      Q: Is visibility into future volumes improving?
      A: With increasing repeat usage and higher transactions per user, Affirm sees significant opportunity for growth. However, they acknowledge there's still much work to do, and their forecasts reflect realistic expectations.

    10. Revenue Streams & Growth Contributors
      Q: Which revenue streams will drive growth in FY '25?
      A: Management indicates that growth will come from making assets more valuable but does not specify which revenue streams will contribute more. The mix will depend on origination volume, loan content, and capital strategies.

    11. Apple Pay User Experience & Economics
      Q: What will Apple Pay integration look like?
      A: While details are under wraps until launch, Affirm emphasizes that regardless of the channel, they maintain consistent economics, targeting a revenue less transaction cost metric of 3% to 4%, ensuring profitability across platforms.

    Related Publications