Is Buy-Now-Pay-Later (BNPL) dead? Affirm's disastrous Q2'23 Earnings Analysis
$Affirm Holdings(AFRM.US$ Affirm, a BNPL tech company, did IPO in January 2021 and its stock has declined by ~90%. The main street media came up with a nick name: Buy Now Pay Never. The product is mainly targeted to low-income group by offering interest-bearing or interest-free installments. How do they make money? Collect interest from customers and Merchant revenue. BNPL should be really be considered and used as a marketing tool for merchants not to take money from the poor. Affirm's main competitors include Paypal $PayPal(PYPL.US$ and Block's $Block(SQ.US$ Afterpay.
Affirm had an amazing run by expanding their active merchants over 10 fold in 2021 and 2022, But the recent trend showed its growth plateaued and even declined QoQ in Q2'23
We usually would evaluate a company's top line using their revenue, which still had 11% YoY in recent quarter. But it is not a great metric to use for BNPL company like Affirm. Because each dollar in revenue earned by the company comes with certain risk and transaction cost. They are like Cost of Goods (COGs) for food company but more risk.
Like the content so far? Subscribe to my free substack for more: https://tjresearch.substack.com/
This is a better metric to use is Revenue less transaction costs which takes out funding cost, provision for default and other costs. Funding cost for affirm rapidly rose in recent quarters because of Fed raising interest rate and provision for default also increased notably because consumers are under stress. This risk-adjusted Revenue just posted a -21% YoY growth which reflects the business is facing huge headwinds from Macro environment.
In the meantime, we see no clear sign of Non-GAAP operating expenses to go down. However, the company did announce its plan to cut 19% of headcount recently which is expected to save $80m/Year.
Finally on top of the company's mismanagement of expense problem, its Stock-based-Compensation is outrageous: $120m per quarter compared to $140m risk-adjusted revenue or $400m revenue. No matter how you spin it, management is diluting stock holders value irresponsibly.
Since past year, we started to realize a lot of so-called tech/fintech company is not much different than a lending company that faces great risks due to macro environment. And by labeling themselves as a tech company, they are entitled to issue huge SBC which is utterly wrong at so many levels. The board should not allow this happen and the managements need to act responsibly for their poor share holders.
Disclosure: the author does not own AFRM at the time of this writing and this is not financial advice
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
Read more
Comment
Sign in to post a comment
Love doing research on companies, macro and hot financial topics
More at: https://tjresearch.substack.com/
552Followers
1Following
988Visitors
Follow