Affirm shares down 17% after missing earnings forecast

Shares of fintech company Affirm plummeted by more than 17 percent after hours following a lower-than-expected second-quarter earnings report for the 2023 fiscal year.

Analysts earlier estimated the buy now, pay later (BNPL) platform to post quarterly revenue of $416 million, but it only achieved $400 million in revenue. Affirm also reported a $1.10 loss per share against the forecast of a $0.98 loss per share.

The BNPL sector thrived when the economy was booming. However, the Federal Reserve's hawkish monetary policy, which started in March 2022, has "dampened consumer spending and increased Affirm's cost of borrowing dramatically."

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Affirm founder and CEO Max Levchin said he had reacted too slowly to the macroeconomic changes. In addition to decreased consumer spending, Affirm and other players in the BNPL sector have to deal with increased defaults from their users.

Levchin also announced that Affirm had let go of 19 percent of its employees on Wednesday to adapt to the change. At the beginning of the pandemic, the CEO said Affirm had hired "ahead of the revenue" to support its growth, but the faltering growth pace then forced the company to trim its workforce.

Laid-off Affirm employees in the U.S. are eligible for at least 15 weeks of base pay as severance plus an additional week per tenure year. They will also receive a $5,000 health stipend to cover six months of employee healthcare. Meanwhile, the severance package for non-U.S. employees will depend on local regulations.

Levchin said laid-off personnel could keep their company-issued devices to help them with job searches. These former employees can also access three months of career coaching and an alumni directory.

In a letter to shareholders, Levchin wrote that the company would freeze hiring for the time being. Affirm also plans to focus on cultivating its core business.

"Our goals remain very ambitious: Remain firmly in control of risk, grow both volume and revenue, and engage our consumers to continue increasing repeat usage, both online and offline," Levchin wrote.

"Moving forward, we will launch new initiatives with more discipline, greenlighting only high-conviction, long-term bets."

The market closely monitors shares of BNPL companies, especially many companies within the sector that reported similar issues as Affirm. Australian BNPL firm Openpay, for instance, recently filed for bankruptcy after struggling with funding issues.

Affirm closes crypto division

In the shareholder letter, Levchin also announced that Affirm would shut down its "Affirm Crypto Program." In addition to unstable macroeconomic conditions, Levchin cited the need to offset some liabilities on the balance sheet as a primary driver for the decision.

“In a period of increased economic uncertainty, we are doubling down on our core businesses, delaying projects with less certain revenue timelines, and aligning our operating expenses with revenue. Concurrent with reducing our workforce, we are sunsetting several initiatives, such as Affirm Crypto.”

Max Levchin, Founder and CEO of Affirm

Affirm chief financial officer Michael Linford explained closing these initiatives would allow the company to meet its profitability targets because it could allocate the fund to core businesses instead.

"We believe our cost base is now appropriately sized to meet our profitability goals while still supporting our product roadmap and long-term growth ambitions," Linford said.

Affirm users can no longer purchase Bitcoin through its app on March 2, 2023. Meanwhile, the program will officially shut down on March 31, 2023. If users still have Bitcoin left in their accounts by that time, Affirm will trade the token at CME CF Bitcoin Reference Rate (BRR). The platform will then deposit the sale proceeds into users' savings accounts.

Affirm launched its crypto program in 2021. The company partnered with the Bitcoin payments platform NYDIG to offer crypto accounts to its users and process Bitcoin transactions. The crypto program also allowed users to set up a mechanism where monthly interest gained from their savings accounts could be converted into BTC automatically.