Release Date: February 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Affirm Holdings Inc (NASDAQ:AFRM) reported a noticeable increase in 0% loans, which are being used to open new merchant doors and target specific verticals.
• The company has successfully integrated wallet partners, enhancing transaction per user averages and conversion metrics.
• Affirm Holdings Inc (NASDAQ:AFRM) has seen a 23% year-over-year increase in active customers, marking four consecutive quarters of accelerating growth.
• The company has made significant progress in capital markets, exemplified by a strong partnership with Sixth Street.
• Affirm Holdings Inc (NASDAQ:AFRM) is expanding its international presence, with promising initial results in the UK market and plans to leverage its diverse product offerings.

Negative Points

• The 0% loan product, while beneficial for growth, is slightly margin diluted compared to interest-bearing products.
• Affirm Holdings Inc (NASDAQ:AFRM) faces challenges in expanding its card usage to new merchant categories and increasing its share of consumer spending.
• The company has not yet achieved a significant depository relationship with its cardholders, limiting its understanding of their total financial state.
• Affirm Holdings Inc (NASDAQ:AFRM) is still in the testing phase for its UK launch, with limited merchant partnerships and transactions.
• The company has seen an increase in non-GAAP sales and marketing expenses, which may impact future profitability if not managed carefully.

Q & A Highlights

• Warning! GuruFocus has detected 6 Warning Signs with AFRM.

Q: Can you discuss the strategy behind the increase in 0% loans? Are they targeted at new merchants or existing partners? A: Max Levchin, CEO: The increase in 0% loans is part of a broad strategy. Merchants and manufacturers often subsidize these loans to offer interest-free options, which are compelling for consumers. This approach helps maintain pricing integrity while promoting sales. We've industrialized this process, allowing merchants to easily offer these promotions across Affirm's platforms, including our app and card.

Q: You exceeded your 3% to 4% RLTC guidance. How do you plan to reinvest this excess? A: Rob O'Hare, CFO: We are leaning into 0% loans, which are slightly lower margin but help reach a broader consumer base. This strategy aligns with our goal to grow the network and enhance consumer reach, even if it means a slight margin dilution.

Q: How does the RLTC margin profile affect your strategy with 0% loans? A: Michael Linford, COO: We aim to maintain a 3% to 4% RLTC margin long-term. While we are open to investing in growth, we prioritize financial sense. 0% loans offer positive credit selection, which is attractive for our portfolio, even if they are slightly lower margin.

Q: Can you provide an update on the UK launch and your strategy to gain market share there? A: Max Levchin, CEO: It's early to predict market share, but our diverse term offerings, like 24- and 36-month loans, are in demand. UK merchants are eager for these options, and we're seeing strong interest. Our integration with Shopify will soon be live, marking a significant step in our UK expansion.

Q: How do you view the durability of your funding cost improvements? A: Michael Linford, COO: While market conditions are favorable, our credit performance has strengthened our capital partner relationships, which we believe is durable. Our focus on credit execution and maintaining strong capital partnerships will help sustain these improvements.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.