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The stock market was having a generally positive day on Friday, but buy now, pay later fintech company Affirm (AFRM 3.17%) was a major standout. As of 10 a.m. ET, Affirm shares have risen by 25% for the day.
In a nutshell, Affirm’s earnings report, which was released Thursday after the market closed, was far better than expected.
Not only did revenue in the latest fiscal quarter grow by 22% year over year (YOY) despite the difficult economic climate, it also came in significantly better than analysts had expected. Gross merchandise volume through Affirm’s platform was $5.5 billion, up 25% from the same quarter a year ago. On the bottom line, Affirm did post a net loss for the quarter, but it was much narrower than expected.
There are now 254,000 merchants that partner with Affirm for financing options and more than 16.5 million customers who use Affirm’s financing. Plus, the average active Affirm customer uses the service 30% more frequently than a year ago.
In addition, Affirm’s guidance for the current quarter was significantly higher than investors were looking for. Plus, the company was profitable on the basis of adjusted operating income, and management foresees this being the case for the upcoming fiscal year and beyond.
Perhaps most significantly, Affirm reported that delinquency rates fell 30 basis points YOY. This has been most investors’ biggest concern with buy now, pay later as a business, especially since these are effectively unsecured loans, more than 40% of Affirm’s loans are to nonprime customers, and most experts are expecting a recession. For the time being, the business model seems to be performing better than expected, and that combined with strong growth and an upbeat outlook is why we’re seeing the stock soar today.
Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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