Affirm (AFRM) , which is the "buy now, pay later" startup led by PayPal Holdings (PYPL) co-founder Max Levchin, released the firm's fiscal third quarter financial results on Thursday evening. Color me impressed. For the three month period ended March 31st, Affirm posted GAAP EPS for a loss of $0.19 on revenue generation of $354.8M. Both numbers easily beat Wall Street and the revenue print was good for year over year growth of 53.8%.
Glancing at the numbers within, active customers increased 137% year over year to 12.7M, while active merchants increased from 12K one year ago to 207K. Gross Merchandise Volume increased 73% to $3.9B, leading to the 53.8% revenue growth mentioned above. Total transactions increased 162% to 10.5M, as transactions per active customer increased to 2.7 from 2.5 three months earlier.
Operating loss amounted to $-226.6M compared to $-209.3M for the year ago comp, driven by investment in sales and marketing that include a $102.4M related to warrants granted to Amazon (AMZN) in November of last year. This expense was partially offset by an $81.3M decrease in stock-based compensation compared to the year prior.
Outlook
For the current quarter, Affirm sees revenue generation at $345M to $355M versus Wall Street's consensus view of about $353M, and adjusted operating margin of -11% to -15%. For the full fiscal year 2023, Affirm expects to drive revenue of $1.33B to $1.34B, up from previous guidance of $1.29B to $1.31B, and in-line to better than in-line than consensus view of $1.33B. The firm sees full year adjusted operating margin at -6.6% to -7.6%.
Perhaps the single most important or significant forward looking announcement made by Affirm last night was the revealing of the firm' plan to achieve sustained adjusted operating income profitability on a run rate basis by the end of fiscal year 2023. That's why the shares were trading higher.
Balance Sheet
Affirm ended the quarter with a net cash position of $3.293B and current assets of $5.764B. Current assets amount to just $401.2M. That's good for an almost unheard of current ratio of 14.4. Total assets of $7.032B includes $608.3M in "goodwill" and other intangibles. Even excluding all intangibles, assets still easily outweigh total liabilities less equity of $4.456B. One thing, there is a lot of debt on this balance sheet. Across several varieties of debt, the total comes to about $4.054B. This balance sheet does pass the Sarge test, but that is a lot of debt and not even completely covered (not that it has to be) by a very large cash position. That's really what keeps this balance sheet from getting my highest marks.
My Thoughts
I am impressed. I'm impressed with the growth. I'm impressed with the full year guidance. I am also impressed with the plan to reach sustained operating income profitability by the end of next year. That's why the shares were trading higher. That's what is necessary in this current market environment that does not reward sales growth without profitability. AFRM may be trading with a $23 handle (+28%), but did close on Thursday night at $18.04, which is down 89.8% from the November high.
AFRM went out on Thursday afternoon deeply if not technically oversold. Just ask the stock's Relative Strength Index and Full Stochastics Oscillator. They'll tell you. The daily MACD is kinda, sorta ugly as well. The stock traded as low as $13.64 on Thursday ahead of the market's bullish reversal. That means that the shares at $23+ have almost doubled in 24 hours. I don't think I want to buy this kneejerk rally on a move like that. I do want a piece of the action though.
I'd rather pay $4 for the June 17th AFRM $25 calls than pay $23.50 for the equity...
But...
I'd rather sell (write) the June 17th AFRM $15 puts for $1.25 than do any of the above.
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