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Earnings Results: Affirm stock plunges toward record low after Peloton’s struggles weigh on forecast

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Affirm Holdings Inc. shares plummeted Tuesday afternoon, after executives brought down their annual guidance for the buy-now-pay-later company amid troubles at one of its most important partners in recent years, Peloton Interactive Inc.

Affirm
AFRM,
+0.06%

shares fell more than 15% in after-hours trading immediately after the results were reported, after closing with a 0.1% gain at $15.64. The after-hours prices would be record lows for the young company, which went public in early 2021 at $49 a share; the stock has not traded lower than $13.64 in a regular session since, but was trading at $13.23 in the extended session Tuesday afternoon.

The company reported a fiscal first-quarter comprehensive loss of $278.3 million, or 86 cents a share, compared with a loss of $311 million, or $1.13 a share, in the year-earlier quarter. The FactSet consensus was for an 84-cent loss on a GAAP basis.

Affirm’s revenue rose to $361.6 million from $269 million, while analysts had been projecting $360 million. The company’s total revenue excluding transaction costs was $182.3 million.

The company’s count of active merchants increased to 244,900 from 235,000 on a sequential basis, while Affirm’s count of annual active customers ticked up to 14.7 million in the September quarter from 14 million in the June quarter. Affirm reported $4.4 billion in gross merchandise volume, or the dollar value of transactions on its platform during the quarter.

The problem appeared to be in Affirm’s forecast, with executives trimming their full-year forecast after the fiscal first quarter and missing on their revenue guidance for the second quarter while dealing with a massive decline in demand for bikes from Peloton
PTON,
+1.81%
.

“In light of the current volatile macro-economic environment and the continued and pronounced slowdown with a particular large merchant partner, we are reducing our outlook for FY’23,” executives wrote in a letter to shareholders. “While we are actively working to mitigate these headwinds and to drive profitable growth, we remain excited about the opportunity ahead.”

While the executives declined to mention Peloton by name there, they were not shy detailing how the decline of the exercise-bike company that became popular early in the COVID-19 pandemic was affecting their business elsewhere in the letter.

“During the pandemic, we experienced a substantial GMV mix shift towards Peloton, which had customers with excellent credit quality,” executives wrote in a letter to shareholders. “However, Peloton accounted for less than 2% of our GMV in FQ1’23, versus 23% and 18% of GMV in FY’20 and FY’21, respectively.”

Affirm executives forecast $20.5 billion to $21.5 billion in gross merchandise volume for the full fiscal year, along with $1.6 billion to $1.68 billion in revenue. Management’s prior full-year forecast called for $20.5 billion to $22.0 billion in GMV and $1.625 billion to $1.725 billion in revenue.

For the fiscal second quarter, executives forecast volume of $5.73 billion to $5.83 billion and revenue of $400 million to $420 million. Analysts on average were expecting volume of $5.56 billion and revenue of $434 million, according to FactSet.

Overall, Mizuho’s Dan Dolev noticed a “less promising macro commentary” in Affirm’s forecast.

This time around, executives said the full-year forecast assumes “the current forward interest-rate curve and negative consumer sentiment will persist throughout the remainder of the fiscal year with no improvement in macroeconomic conditions.”

When they issued the prior forecast, they disclosed that they saw “the current forward interest-rate curve as well as early signs of macroeconomic stress persisting through the fiscal year.”

Headed into the company’s earnings call, investors were focused on how Affirm’s business is holding up in the current economic climate and how loan funding has progressed.

“Details on how the company is managing the impacts of a higher interest-rate environment, tightness of the credit box, and funding costs will…be key topics,” Bank of America’s Jason Kupferberg wrote ahead of the report.

Shares of Affirm have lost about 90% over the past 12 months as the S&P 500
SPX,
+0.56%

has declined 19%.

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