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Affirm (AFRM) Dips 9% as Q2 Earnings Miss on High Funding Costs
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Shares of Affirm Holdings, Inc. (AFRM - Free Report) have declined 8.6% since it reported second-quarter fiscal 2024 results on Feb 8. The quarterly results were hurt by an elevated expense level, which stemmed from an increase in loss on loan purchase commitment, provision for credit losses, funding costs, and processing and servicing expenses. Nevertheless, the downside was partly offset by improved servicing income, network revenues and an increase in the transaction count implying higher utilization of AFRM’s cards.
Adjusted earnings of 4 cents per share lagged the Zacks Consensus Estimate by 50%. A loss of $1.10 per share was reported in the year-ago quarter.
Net revenues climbed 48% year over year to $591.1 million (exceeding management’s expectation of $495-$520 million) in the quarter under review. The top line outpaced the consensus mark by 12.8%.
Affirm Holdings, Inc. Price, Consensus and EPS Surprise
Active merchants of Affirm were 279,000, which rose 15% year over year. The Gross Merchandise Volume ("GMV") advanced 32% year over year to $7.5 billion (crossed management’s expected range of $6.7-$6.9 billion) in the second quarter of fiscal 2024, higher than the Zacks Consensus Estimate of $7 billion. Total transactions of 26.2 million surged 42% year over year on the back of a significant increase in repeat customer transactions.
Servicing income of $22.4 million improved 4% year over year resulting from higher net servicing fee revenues. The metric beat the consensus mark of $22 million. Interest income soared 86% year over year to $288.3 million in the quarter under review, which surpassed the consensus mark of $266 million.
Merchant network revenues climbed 41% year over year to $188.4 million, higher than the Zacks Consensus Estimate of $161 million. The metric was aided by a higher GMV. Card network revenues of $39.3 million improved 35% year over year, attributable to the higher usage of Affirm cards. The metric beat the consensus mark of $35.8 million.
Total operating expenses inched up 1% year over year to $763.3 million due to increased loss on loan purchase commitment and higher funding, and processing and servicing expenses. Provision for credit losses escalated 13% year over year to $120.9 million. Meanwhile, technology and data analytics, sales and marketing, and general and administrative expenses fell 24%, 14% and 16%, respectively, on a year-over-year basis.
Affirm incurred a net loss of $166.9 million in the December quarter, narrower than the year-ago quarter’s loss of $322.4 million. Adjusted operating margin was 16%. The metric was a negative 16% in the year-ago quarter.
Financial Position (as of Dec 31, 2023)
Affirm exited second-quarter fiscal 2024 with cash and cash equivalents of $1 billion, which increased 16.2% from the fiscal 2023-end figure. Total assets of $9.1 billion grew 11.2% from the level at fiscal 2023 end.
Funding debt amounted to $1.9 billion, up 8% from the figure as of Jun 30, 2023. Total stockholders’ equity of $2.6 billion rose 4% from the fiscal 2023-end figure.
During the six months that ended Dec 31, 2023, AFRM generated operating cash flows of $173.2 million, which increased nearly eight-fold from the year-ago comparable period.
3Q24 Guidance
Affirm forecasts third-quarter fiscal 2024 GMV to be $5.8-$6 billion. Revenues are estimated to be within $530-$550 million. Transaction costs are estimated between $325 million and $335 million. The weighted average shares outstanding are expected to be 314 million. It projects the adjusted operating margin to be within 6-8%.
FY24 Guidance
Management anticipates GMV of more than $25.25 billion in fiscal 2024, up from the prior guidance of more than $24.25 billion. The revised outlook indicates an improvement of more than 25% from the fiscal 2023 figure.
Revenues, as a percentage of GMV, are projected to expand 65 basis points from the fiscal 2023 figure. The earlier view called for the metric to be similar to the fiscal 2023 level. The adjusted operating margin is estimated to register at more than 11%. Weighted average shares outstanding continue to be estimated at 311 million.
Of the Business Services sector players that have already released December-quarter results so far, the bottom-line results of Mastercard Incorporated (MA - Free Report) , Omnicom Group Inc. (OMC - Free Report) and Gartner, Inc. (IT - Free Report) beat the Zacks Consensus Estimate.
Mastercard reported fourth-quarter 2023 adjusted earnings of $3.18 per share, which outpaced the Zacks Consensus Estimate by 3.3%. The bottom line climbed 20% year over year. Net revenues of the leading technology company in the global payments industry amounted to $6.5 billion, which improved 13% year over year in the quarter under review. The top line beat the consensus mark by 1.4%. Gross dollar volume rose 10% on a local-currency basis to $2.4 trillion in the fourth quarter. Cross-border volumes advanced 18% on a local currency basis. The figure grew 12% year over year. MA’s clients issued 3.3 billion Mastercard and Maestro-branded cards as of Dec 31, 2023.
Omnicom’s fourth-quarter 2023 earnings of $2.16 per share beat the consensus estimate by 1.9% and increased 5.3% year over year. Total revenues of $4.06 billion surpassed the consensus estimate by 1.5% and increased 5% year over year. Across fundamental disciplines, revenues from Advertising & Media were up 9.3% compared with our estimated growth of 5.6%. Precision marketing revenues dipped 1.1% and Experiential revenues declined 8%. Adjusted operating profit of $661.2 million increased 2.9% year over year. The operating margin of OMC decreased 30 basis points to 16.3%.
Gartner reported fourth-quarter 2023 adjusted earnings (excluding 40 cents from non-recurring items) per share of $3.04, which beat the Zacks Consensus Estimate by 9.4% but decreased 18% from the year-ago reported figure. Revenues of $1.6 billion beat the consensus estimate by 0.6% and improved 5% year over year on a reported basis and 4% on a foreign-currency-neutral basis. The total contract value of IT was $4.8 billion, up 8% year over year on a foreign-currency-neutral basis. Revenues in the Research segment increased 6% year over year on a reported basis and 5% on a foreign-currency-neutral basis.
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Affirm (AFRM) Dips 9% as Q2 Earnings Miss on High Funding Costs
Shares of Affirm Holdings, Inc. (AFRM - Free Report) have declined 8.6% since it reported second-quarter fiscal 2024 results on Feb 8. The quarterly results were hurt by an elevated expense level, which stemmed from an increase in loss on loan purchase commitment, provision for credit losses, funding costs, and processing and servicing expenses. Nevertheless, the downside was partly offset by improved servicing income, network revenues and an increase in the transaction count implying higher utilization of AFRM’s cards.
Adjusted earnings of 4 cents per share lagged the Zacks Consensus Estimate by 50%. A loss of $1.10 per share was reported in the year-ago quarter.
Net revenues climbed 48% year over year to $591.1 million (exceeding management’s expectation of $495-$520 million) in the quarter under review. The top line outpaced the consensus mark by 12.8%.
Affirm Holdings, Inc. Price, Consensus and EPS Surprise
Affirm Holdings, Inc. price-consensus-eps-surprise-chart | Affirm Holdings, Inc. Quote
Q2 Performance
Active merchants of Affirm were 279,000, which rose 15% year over year. The Gross Merchandise Volume ("GMV") advanced 32% year over year to $7.5 billion (crossed management’s expected range of $6.7-$6.9 billion) in the second quarter of fiscal 2024, higher than the Zacks Consensus Estimate of $7 billion. Total transactions of 26.2 million surged 42% year over year on the back of a significant increase in repeat customer transactions.
Servicing income of $22.4 million improved 4% year over year resulting from higher net servicing fee revenues. The metric beat the consensus mark of $22 million. Interest income soared 86% year over year to $288.3 million in the quarter under review, which surpassed the consensus mark of $266 million.
Merchant network revenues climbed 41% year over year to $188.4 million, higher than the Zacks Consensus Estimate of $161 million. The metric was aided by a higher GMV. Card network revenues of $39.3 million improved 35% year over year, attributable to the higher usage of Affirm cards. The metric beat the consensus mark of $35.8 million.
Total operating expenses inched up 1% year over year to $763.3 million due to increased loss on loan purchase commitment and higher funding, and processing and servicing expenses. Provision for credit losses escalated 13% year over year to $120.9 million. Meanwhile, technology and data analytics, sales and marketing, and general and administrative expenses fell 24%, 14% and 16%, respectively, on a year-over-year basis.
Affirm incurred a net loss of $166.9 million in the December quarter, narrower than the year-ago quarter’s loss of $322.4 million. Adjusted operating margin was 16%. The metric was a negative 16% in the year-ago quarter.
Financial Position (as of Dec 31, 2023)
Affirm exited second-quarter fiscal 2024 with cash and cash equivalents of $1 billion, which increased 16.2% from the fiscal 2023-end figure. Total assets of $9.1 billion grew 11.2% from the level at fiscal 2023 end.
Funding debt amounted to $1.9 billion, up 8% from the figure as of Jun 30, 2023. Total stockholders’ equity of $2.6 billion rose 4% from the fiscal 2023-end figure.
During the six months that ended Dec 31, 2023, AFRM generated operating cash flows of $173.2 million, which increased nearly eight-fold from the year-ago comparable period.
3Q24 Guidance
Affirm forecasts third-quarter fiscal 2024 GMV to be $5.8-$6 billion. Revenues are estimated to be within $530-$550 million. Transaction costs are estimated between $325 million and $335 million. The weighted average shares outstanding are expected to be 314 million. It projects the adjusted operating margin to be within 6-8%.
FY24 Guidance
Management anticipates GMV of more than $25.25 billion in fiscal 2024, up from the prior guidance of more than $24.25 billion. The revised outlook indicates an improvement of more than 25% from the fiscal 2023 figure.
Revenues, as a percentage of GMV, are projected to expand 65 basis points from the fiscal 2023 figure. The earlier view called for the metric to be similar to the fiscal 2023 level. The adjusted operating margin is estimated to register at more than 11%. Weighted average shares outstanding continue to be estimated at 311 million.
Zacks Rank
Affirm currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Other Business Services Sector Releases
Of the Business Services sector players that have already released December-quarter results so far, the bottom-line results of Mastercard Incorporated (MA - Free Report) , Omnicom Group Inc. (OMC - Free Report) and Gartner, Inc. (IT - Free Report) beat the Zacks Consensus Estimate.
Mastercard reported fourth-quarter 2023 adjusted earnings of $3.18 per share, which outpaced the Zacks Consensus Estimate by 3.3%. The bottom line climbed 20% year over year. Net revenues of the leading technology company in the global payments industry amounted to $6.5 billion, which improved 13% year over year in the quarter under review. The top line beat the consensus mark by 1.4%. Gross dollar volume rose 10% on a local-currency basis to $2.4 trillion in the fourth quarter. Cross-border volumes advanced 18% on a local currency basis. The figure grew 12% year over year. MA’s clients issued 3.3 billion Mastercard and Maestro-branded cards as of Dec 31, 2023.
Omnicom’s fourth-quarter 2023 earnings of $2.16 per share beat the consensus estimate by 1.9% and increased 5.3% year over year. Total revenues of $4.06 billion surpassed the consensus estimate by 1.5% and increased 5% year over year. Across fundamental disciplines, revenues from Advertising & Media were up 9.3% compared with our estimated growth of 5.6%. Precision marketing revenues dipped 1.1% and Experiential revenues declined 8%. Adjusted operating profit of $661.2 million increased 2.9% year over year. The operating margin of OMC decreased 30 basis points to 16.3%.
Gartner reported fourth-quarter 2023 adjusted earnings (excluding 40 cents from non-recurring items) per share of $3.04, which beat the Zacks Consensus Estimate by 9.4% but decreased 18% from the year-ago reported figure. Revenues of $1.6 billion beat the consensus estimate by 0.6% and improved 5% year over year on a reported basis and 4% on a foreign-currency-neutral basis. The total contract value of IT was $4.8 billion, up 8% year over year on a foreign-currency-neutral basis. Revenues in the Research segment increased 6% year over year on a reported basis and 5% on a foreign-currency-neutral basis.