Affirm scans landscape for acquisitions

With plenty of cash on hand, Affirm CEO Max Levchin considers acquisitions as one of many routes for the buy now-pay later company to continue its growth

Buy now-pay later company Affirm is on the lookout for acquisitions now that prices for targets have declined amid market turmoil.

Affirm CEO Max Levchin told analysts on a call to discuss the company’s fiscal fourth-quarter results Thursday that the big BNPL player is pursuing growth that could include buying up other players struggling in the current economic environment. One U.S. rival, Sezzle, recently dropped a plan to be acquired by the Australian BNPL company Zip.

“If we can find something in the space, or near the space, that is better off owned by us and operated by us, I think we will take it very seriously now that the prices have normalized and we do have a clear road to profitability and have quite a significant cash position,” Levchin said during the call.

While he noted that no purchase is imminent, he explained that other competitors in the space may not be as adept as Affirm at the credit underwriting aspect of the business and may benefit from his company’s expertise in that area and from its scale.

“We're looking for businesses that have amazing entrepreneurs, amazing ideas, amazing first signs of traction, that would really benefit from being put on a platform that has exceptional underwriting, exceptional capital markets reach, (and) at this point, a very, very large user base, very large merchant base,” Levchin said. “So there's, we think, lots of opportunity. We'll be very judicious.”

The company’s fiscal fourth-quarter, ending June 30, and full-year results underscored its growth, with revenue jumping 39% to $364 million and 55% to $1.35 billion, respectively, according to its earnings press release issued Thursday. Nonetheless, like so many BNPL providers, Affirm’s losses continue to widen, with the company posting a $186.4 million loss for the fourth quarter, compared to $123.4 million for the year-ago period, and a $707.4 million loss for the year, compared to $441 million for the prior year.

The company had $1.26 billion in cash, and cash equivalents, as of the end of the quarter, down from $1.47 billion as of the end of the period last year, according to the release.

The challenging economic climate, with rising inflation and climbing interest rates, is expected to test all BNPL players because it will show whether their customers can continue paying off their loans, even when their personal budgets are under stress. With BNPL, consumers have the ability to buy goods and services and receive them immediately, but pay for them over time in installments, usually about four to six weeks.

Affirm did recognize some stress for consumers in lower quality credit categories during the most recent quarter and tightened its credit approvals in response, noted RBC Capital Analyst Dan Perlin in a report to investors on Thursday. Still, Perlin noted that the company is gaining traction.

The Affirm “platform was resilient against macro conditions negatively impacting consumers, and shows continued scale and expansion from its existing and new cohorts,” Perlin said in the report.

Levchin waved away analyst questions about the stress that consumer constraints could pass to Affirm if customer delinquencies on loans begin to increase. He reminded them that the loans his company makes are different from those offered by typical credit card companies because Affirm customers are required to pay off the loans more quickly. About half of Affirm’s loan book is paid within about four months and 80% are paid within 8 months, he said. He also noted that consumer budget consciousness could boost demand for the company’s pay-later services.

Affirm’s reliance on stationary bike manufacturer Peloton, which experienced a downturn over the past year, is being reduced, Affirm Chief Financial Officer Michael Linford told analysts on the call. Affirm in the past pointed to Peloton as its largest customer, but a spokesperson for the company said that is no longer the case.

Now, Affirm has also begun to provide financing for consumers shopping at online retail juggernaut Amazon and expects that relationship to expand, Levchin added.

The CEO also expects further growth from Affirm’s plan to begin offering a rewards plan in the second half of the year, in time for the yearend holiday shopping season, as well as from its new debit card offering and international expansion in Canada and the United Kingdom.

By Lynne Marek on Aug 26, 2022
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