The number of startups build buy now pay later (BNPL) services is a long time. This year, we’ve seen French BNPL startup Alma raise a $130 million equity round, BillEase raise $11 million for BNPL in the Philippines, Lipa Later raise $12 million for the same effort in Kenya, and ThankUCash $5.3 million. raised for fintech infrastructure in Africa that appears to include BNPL services.
There have been other financing events and product launches, but that’s enough of an example for us to understand that private market investors around the world are investing in the ability to settle consumers and provide credit, even after the incumbent industry Affirm moves to the went public and Klarna has grown on a large scale with a global reach. The $29 billion Block-Afterpay deal also boosted the startup’s BNPL volume, we think.
Until recent turbulence, there was good reason to view BNPL startup investments as wise bets. After all, public market investors had pushed Affirm’s shares to over $175 a share by the end of 2021, from an IPO price of $49 a share. And Klarna raised $639 million in mid-2021 at a valuation of nearly $46 billion. With such momentum, why not start a large number of BNPL services targeting certain regions around the world?
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All the warm and fuzzy of the above paragraph comes with a huge caveat, which is that Affirm’s value has eroded greatly in the public markets. After trading at just over $81 a share this week, an early tweet with earnings data yesterday sent Affirm shares sharply lower. The company’s full results and earnings call failed to stop the bleeding. Excluding yesterday’s declines of more than 20%, Affirm’s shares are still down about 15% today at the time of writing, trading at just $49.70 per share.
That’s more than the company’s IPO price. Unfortunately, we don’t have any Q4 data from Klarna to dredge in comparison; the company recently shared its Q3 data. So we will have to try to settle the change in Affirm’s value ourselves. What we need to understand is why Affirm’s earnings were so damaging to its value, and whether other companies are at the same risk. More simply, should the myriad of well-funded BNPL startups view Affirm’s descent as a warning against their own efforts or as something more company-specific for US fintech?
Affirm’s Calendar Q4
Affirm’s business calendar is the same as Microsoft’s, it seems, with the Q4 2021 calendar being the second quarter of fiscal 2022. This means some of the language below will be somewhat tortured as we discuss time periods. We honestly can’t do much about it; the financial world isn’t really set up for us to enjoy smooth phrasing. Forward.
In the second quarter of fiscal 2022, Affirm GMV reported $4.5 billion (+115% YoY), revenue of $361.0 million (+77% YoY), revenue minus transaction costs of $183.6 million (+ 93% YoY), an operating loss of $196.2 million (+632% yoy), and an adjusted operating loss of $7.9 million, several million worse than the adjusted operating loss of $3.1 million of the second quarter of 2021.
Affirm’s new agreements with Amazon and Shopify helped fuel rapid GMV and sales increases.
There is good and bad in it. GMV growth was strong, revenue growth solid and revenue excluding transaction costs even better. In fact, Affirm crushed revenue expectations, which were $328.8 million for the quarter. So what went wrong?
Guidance, take rate
For its Q3 fiscal 2022, or calendar Q1 2022 by our calculation, Affirm expects $325 million to $335 million in revenue. Barrons has Wall Street expectations of $335.5 million for the current quarter, so the company’s guidance is a miss on that benchmark.
There were other data points that were less exciting for investors. Take a look at the following chart from Affirm’s series of investor materials: