Affirm : AFRM Nasdaq London Conference Transcript

Published: 2025-06-13 15:18:05 ET AFRM

Published on 06/13/2025 at 15:18

Nasdaq London Investor Conference

June 11, 2025

Presentation Participants

Rob O'Hare, Chief Financial Officer

John Hecht, Equity Research Analyst Turpin Senou, Sales & Trading

Presentation

Okay, well, welcome to first of all, Rob. Thanks so much for being here. Good to see you and sorry I can't be across the pond with you. But I'm John Hecht and I'm the senior analyst at Jefferies. I cover Affirm. As we all know, Affirm is a point-of-sale finance company that predominantly engages in buy now pay later type of transactions and transactions processing. It's a technological based platform that allows merchants and consumers to seamlessly engage in transactions. And in some cases, engage in services around transactions like financing of the transactions and all the settlement associated with transactions.

Affirm's been -- it's the largest buy now pay later in the U.S. Its key partners include Amazon and Shopify. It's currently entering into the U.K., so we'll get an update on that today. The company has very attractive growth, top line growth in the mid 20%, customer growth over 20%, and then it's been -- we' ve been seeing a very attractive expansion of operating margins and earnings power. The company has also done a remarkable job in managing expenses and managing credit risk through what we perceive to be as a somewhat challenging credit cycle the last two or three years. So it's done a very good job.

And most importantly, it's growing fast and it continues to gain momentum and gain market share in the

U.S. where the option of buy now pay later transactions, it's still very rapid. So with that, I want to introduce Rob. Rob is Affirm's Chief Financial Officer. He's been with the company a few years, but just recently was promoted to this title. He's been Chief Financial Officer at Tile and in the same role at Spark Networks. So a very good, extensive background in this type of role and high growth company. So again, Turpin and I will manage this fireside chat here for the next 30 minutes or so. We'll go back and forth trying to address all the key topics and questions for Affirm.

But towards the end we may offer an opportunity for people in the audience to raise their hands as well. So if you have a question, think about that and we'll call on you at that point in time. So, first, again, welcome, Rob. First is the key take from the quarter. You guys recently reported a strong quarter. Maybe can you talk about what were the positive surprises and other worthy call outs from the last quarter of operating trends?

And thanks for having me, John, and thanks for the lead in and the intro there. The third quarter, we have a June fiscal year so our third fiscal quarter, which was the March quarter, it was a really strong quarter, I would say, across the board. We grew our consumer, our active consumer base, by more than 20%. We also grew the number of active merchants on our platform by more than 20%. So those are really important leading indicators of the size and health of our network.

And the growth in the network translated to our third consecutive quarter of accelerating GMV growth. We grew GMV 36%, which was faster than the same period in the prior year. So we're really proud of those stats. And again, I think it's a testament not only to the strong relationships we have within our merchant base, but also just the increasing interest that consumers have in our category. The category itself, we believe, is growing about 25%. So we're a clear market leader growing slightly faster than the market at large, but it's great to have those tailwinds in terms of consumer adoption and that's ultimately a big function of our growth.

Looking at the P&L, we grew revenue in line with GMV, our measure of transaction profit, revenue less transaction cost grew north of 50% in the quarter and the strong growth there translated to really nice adjusted operating income as well. We had about a 22% margin in the quarter. That's about nine points of margin expansion on a year-over-year basis. So all of the growth that we've seen for the last several quarters is really helping to drive a nice scaling in terms of profitability as well.

And then lastly, we're really proud of the growth that we saw within Affirm Card. Affirm Card, for those of you that haven't used the product, it's our direct to consumer offering. It has the functionality of a debit card, but it has the capabilities of Affirm financing embedded as well. And that product grew to 1.9 million active cardholders, so just under 10% of our active consumer base. And it grew to be about 9% of our GMV, so north of 100% growth rate in the quarter as well.

So really a product that we're very excited about and a product that continues to scale really, really nicely. So we're really proud of how we showed up this quarter, strong growth leading to strong profitability, but also doing, I think, really important things to expand the network.

Okay, that's a good kind high-level intro. We'll get into some of those topics a little bit more deeply. But you did talk about GMV upside and good GMV trends overall. Can you talk about where you're seeing an upside? Is there certain channels or transaction types or transaction characteristics that you 're seeing? Or has it generally been fairly broad in terms of the momentum there?

Yes, I hope it's not an unsatisfactory answer, but the growth actually really was very broad-based. We had two categories in particular, general merchandise and consumer electronics that led the growth from a category perspective, and general merchandise happens to be our largest category as well. But otherwise, we saw really strong growth in almost every industry vertical that we track. You can also look at our growth in the quarter based on product type. We do a mix of loan products. We do pay in four loans, which are also common amongst our competitive set, but then we -- about 85% of our business is done through monthly installment loans that are three months or longer.

And each of those loan products grew really nicely as well. We saw the strongest growth, growth of about 44% within our monthly 0% installment loans. We think that's a pretty differentiated product in the industry. It's not something that our competitors are doing at scale, and it converts really, really well for our merchants, and it's a product that our consumers really like.

It gives them, obviously, the low cost of borrowing through a 0% loan, but we're able to extend the term lengths beyond a pay in four loan and go out three months or longer. So we're really happy with how the loan product is shaping up in terms of mix and ultimately it's that mix that helps drive some of the profitability that I mentioned that we demonstrated in the quarter.

Okay. And then just touching on margins in the quarter, your product level margins or the gross margin, or we call it the RLTC, Revenue Less Transaction Cost, that has trended nicely, but also had upside relative to our expectations. Similarly, but I think from different sources, the operating income margin has also trended nicely. Maybe you can take us through what you, in terms of the product level mix, or efficiencies are scaled, what you 're doing to enhance margins there, and then similarly at the operating at some level.

Sure, good question. In terms of the RLTC margins, we've established long-term or a long-term framework that we want to be between 3% and 4% on that metric as a percentage of GMV. And in three of the last four quarters, we've been slightly above the 4% mark. So, we're operating at or above the high end of what we think the long-term range for the business should be. And really what drives the RLTC take rates in a given quarter is going to be our loan product mix. And in the third quarter, we chose to lean in and had outsized growth, as I mentioned, in our monthly 0% loans.

Those loans are nicely profitable for us and they tend to attract a borrower from the higher end of the credit spectrum versus our interest bearing product. But because we had slightly more mix of those loans, we feel like that's a good way for us to manage the overall profitability while also maintaining focus on what we believe is a pretty important and large market opportunity in the U.S. So we want to make sure that we balance growth with profitability and doing a bit more on monthly installment loans that are 0% APR, that's a way to make sure that we have a wide aperture and are putting loan products in front of borrowers of all types that are going to resonate with those borrowers.

Customers are obviously at the core of what you guys do, and new customers growth has been very strong, about 20%. Can you talk about the evolution of customer acquisition? And also if you can specifically talk about the differences between existing customers and new customers in terms of spend and engagement, for example.

Really the lion's share, almost all of our customer acquisition comes from our merchant partners. We want to make sure that we're visible and as up funnel in the purchasing decisions of a consumer as they're navigating our merchants at our partners' sites. Most of what we do is at ecommerce today, so getting prominence on the product display page is really important for us. We want to be as up funnel as possible. We really don't have any sort of scaled direct to consumer marketing efforts, so point of sale really is the primary tool for user acquisition and for network growth from a consumer perspective. Sorry, could you repeat the second part of the question?

Yes, in terms of the differences between new customers and existing customers in terms of spend and engagement with you guys.

Yes, I mean, when you look at the data on a cohort basis, because we have very large coverage of U.S. ecommerce, we've seen that new cohorts of consumers are transacting more frequently and therefore also spending more with us. You can see that also in our frequency metrics. Our frequency grew to north of 5.5 transactions per user per year while we're also growing the consumer base at roughly 20% clip. So, we're seeing really nice uptake and very strong performance on a cohorted basis as we've continued to grow the network.

Okay. Thanks very much. Yes, you talked about, Rob, just general expansion of the TAM, but then also we noted that Affirm has been gaining share in the current environment. Maybe on the TAM, yes, I'm sure there are certain products you guys believe you're taking share from like credit cards. Maybe talk about that. At the first part of the question, let's talk about where do you think buy now pay later is really taking share from? And then you're growing faster than the market -- within the market who are you taking share from amongst your competitors?

Yes, good question. I think absolutely we're taking share from credit cards. I think that is the largest addressable market for us. There's roughly $1.2 trillion of revolving credit card debt outstanding in the U.S. and there's roughly $4 trillion of annual credit card spend in the U.S. So, buy now pay later, Affirm in and of itself, I mean, we're a very, very small portion of the broader, what we would argue consumer credit market if you 're including credit cards in the picture.

So, obviously the category Affirm itself is growing multiples of what credit card growth rates are and so, we think that's again, a testament to the fair and honest financial products that we put in the hands of our consumers and consumers discovering Affirm at stores and merchants where they're already shopping and having a good experience and wanting to repeat with us. So we think we have a nice flywheel and again I think it's inherent to the ways that we treat the consumer and that's a really important -- internally that's incredibly important to us that we never charge a penny of late fees and that we are aligned with the consumer and don't profit if the consumer were to stumble, right?

So there's no ability to revolve, there's no late fees in our ecosystem and that's incredibly important to us and I think that's helped us grow the business nicely. I think that resonates with merchants, which merchants I believe are increasingly aware of the financing products that are being pushed to users from their surfaces and they want to make sure that those financing products do right by the consumer. So I think the combination of all of those things is helping us to grow faster than even the BNPL industry, which is very growthful at roughly 25% a year.

Rob, so how competitive is the market now? Any update you can give us there? And obviously, we can't talk about competition without talking about Klarna. Have they -- anything you 've noticed differently from them given the IPO process that they've started?

Yes. I mean, the market continues to be competitive. I would make a point that most of the competition we see tends to cluster around the pay in four product in the U.S. You look at our mix of loan products, it's about 15% of what we do. When you look at our competitors, it tends to be the large majority of what they're doing. So that really is the most competitive of the competitive surfaces within the industry. We typically go to market with merchants with a product that we call adaptive checkout, which allows us to change the mix of loans that are offered to the consumer on behalf of the merchant. And typically we put three options in front of a consumer.

And so we can set up a program where one of those options is a pay in four option, but the other two might be monthly installment options, either 0% or interest bearing options. That allows us to craft a program that works for the merchant in the context of what the merchant's objectives are for bringing on a financing partner. Sometimes, to be honest, that's cost of acceptance. Some merchants are laser focused on getting their cost of acceptance sort of down or in line with what they 're paying for credit cards. But in some cases, merchants are really laser focused on conversion.

And by being able to extend our financing offerings and doing longer terms than what our competition typically does, that helps us show up well if that's the rubric that the merchant is applying. So really we pride ourselves on creativity and the flexibility that we can bring to our financing programs. And I think that allows us to show up well and really meet the merchant wherever they're at in terms of their margin structure, in terms of the goods that they 're selling.

And then in terms of Klarna, I think Klarna's been a competitor of ours for the entirety of my tenure at Affirm. I've been here almost five years. They've grown the business in the U.S. The U.S. is an expansionary market for them. We bump into them in RFPs. We're aware of them. I can't comment on how a financing event like an IPO is going to dictate their near-term strategy. But yes, I mean, we definitely bump into them in the market.

Okay, and you -- I want to turn to the consumer now. I think that's a big topic, just spend trends, credit trends, how are they considered? It seems like in the U.S., predominantly, the consumer's been more

Disclaimer

Affirm Holdings Inc. published this content on June 13, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on June 13, 2025 at 19:17 UTC.