The slump in the buy now/pay later market has hit Affirm hard, as the firm on Wednesday shed 19% of its workforce and posted earnings that fell short of analysts’ expectations.
“This is the right destination. We hired a larger team than we can sustainably support,” said Max Levchin, Affirm’s CEO, during Wednesday’s earnings call.
For the quarter ending December 31, Affirm reported revenue of $400 million, up from $361 million a year earlier but less than analysts’ expectations of $416 million, according to Refinitiv. The company also reported a loss of $1.10 per share for the quarter, up from $0.57 per share the prior year and less than analysts’ expectations of a loss of $0.98 per share.
Affirm projected revenue of $360 million to $380 million for the next quarter, down from analysts’ expectations of about $417 million. Gross merchandise revenue hit $5.7 billion, a record for Affirm, but it was not enough to offset headwinds such as a slowing economy and concerns over consumer spending and credit that have hampered the entire BNPL sector.
Affirm’s earnings were also hurt by rising interest rates later in the year. Affirm’s annual percentage rates for consumers range between 10% and 36%, the cap set by its partner banks, Cross River Bank and Celtic Bank. Affirm’s price adjustments came near the end of 2023, and hurt the company’s quarterly balance sheet, Affirm reported.
“The process took longer than anticipated and it’s a lesson we will not soon forget,” Levchin said.
The firm employed more than 2,500 people in late 2022, according to Macrotrends.net. That headcount was up from about 1,600 in 2021 and 916 in 2020. A 19% reduction from the 2022 figure would set the company’s headcount at about 2,000.
“[The earlier hiring] was a deliberate decision: the product opportunities in front of Affirm were too compelling to ignore, and the revenue growth we posted gave us confidence in this strategy,” Levchin said in a letter to employees, noting the boost in interest rates from the Federal Reserve has negatively impacted the company’s growth.
Beyond the job cuts, Affirm plans to exit the cryptocurrency business and will change its project schedule. Affirm Crypto, which allowed users to buy, hold and sell crypto, will be shut down on March 2 as Affirm deemphasizes products with an uncertain revenue outlook.
Affirm has also shifted hiring to Poland, where it has been able to attract talent at a lower cost than Silicon Valley, according to Levchin. Affirm will also move away from executing several projects concurrently, and instead will stagger projects. “It’s harder to justify things today,” Levchin said.
Affirm reported positive news on Debit+, a Visa card that allows consumers to manage spending by giving them 24 hours to split eligible purchases of up to $1,000 into an interest-free loan that is repayable within four installments payable every two weeks.
Affirm considers Debit+ a way to grow its business in categories such as grocery shopping, and on Wednesday noted every segment of Debit+ is profitable. “We feel good about its state of readiness and will find out how much of that food and consumable spend will shift to Affirm,” Levchin said.
Affirm is also expanding its business in the travel sector. It recently entered a partnership with booking firm Kayak, which is reporting growth as pandemic restrictions ease, even as inflation raises airfares.
BNPL firms enjoyed several years of growth, particularly as consumers and investors flocked to the sector early in the pandemic. Affirm and Klarna, another well-known BNPL brand, both had valuations reach $45 billion in 2021, while Block (formerly Square) paid $29 billion to buy BNPL firm Afterpay, demonstrating demand for the product. Affirm also got a major boost from a 2021 deal to become Amazon’s go-to BNPL option. The exclusivity of the Amazon agreement ended January 31, but Affirm reported it has not noticed a change in payment volume in the weeks since. Affirm did not provide an update on a new contract with Amazon. That could pose another source of pressure for Affirm, which reported Amazon makes up about 20% of Affirm’s GPR.
Even as BNPL remains popular with consumers, 2022 was not kind to the BNPL industry. Affirm’s valuation fell to about $7 billion even as the firm reported a 75% spike in gross merchandise volume. Affirm’s stock price was trading at about $16 at Wednesday’s market close, then slid 17% to $13.28 in after-hours trading. Affirm stock traded as high as $153 per share in November 2021.
Klarna has suffered a similar decline in valuation to about $7 billion, and cut at least 10% of its workforce, or about 700 people, last year.
BNPL lenders also face regulatory pressure, as the Consumer Financial Protection Bureau prepares guidance that could extend credit card protections to BNPL consumers.