<News alert> FY2Q24 GMV beat on robust holiday spending
- AFRM FY2Q24 GMV surged by 32% y-o-y to US$7.5b, beat market consensus by 14%
- AFRM’s three growth pillars of scaling Affirm card, winning at checkout and entering new markets remaining intact
- Management revised up GMV, revenue and adj. operating margin guidance in FY24F
Affirm FY2Q24 GMV surged by 32% y-o-y to US$7.5b, beating market consensus by 14%. The robust growth was mainly driven by holiday effects in the general merchandise segment and payments coming through partner platforms. Business metrics demonstrated solid improvement, with the number of active consumers and transactions per active consumer rising by 16% y-o-y and 24% y-o-y, respectively. Overall take rake, defined as revenue as a % of GMV, contracted 95bps to 7.89%, primarily due to changes in product mix, in line with management’s guidance. Operating losses further narrowed by 18% y-o-y to US$172m in FY2Q24, mainly due to effective cost saving plan.
The management revised up FY24F guidance and unveiled Affirm Card, further expansion of checkout partners and entering new markets as the three major growth pillars for Affirm’s mid-term strategy during a recent investment forum. We expect Affirm’s expansion to be supported by accelerating product adoption, improving unit economics, tapping into new spend categories, unlocking new merchants and growing share of cart at existing partners. Its initiatives for international expansion in Canada and Europe through a disciplined approach are expected to unlock opportunities in the B2B market and support its elevated valuation of 8.5x FY25F EV/sales.
While uncertainties persist amid a cloudy macro environment. We remain cautious on how Affirm’s model will grow in the upcoming quarters amid sticky inflation will deteriorating consumer credit profiles and AFRM’s funding costs. Affirm’s funding costs rose by 15% on a q-o-q basis in FY2Q24, and provision for credit losses jumped 21% q-o-q to US$121m. The competitors like PayPal, Block and Apple, are aggressively expanding their buy now pay later (BNPL) business with loss-leading tactics, further exacerbating challenges on AFRM’s ability to pass through the rapidly rising funding costs to their customers. Maintain HOLD with TP of $45.