Shares of Buy-Now-Pay-Later company Affirm Holdings (NASDAQ: AFRM) dived over 20% in late trading on Thursday. You might be wondering why such a drop occurred during trading hours when earnings are traditionally reported after the closing bell. Well, a slight fumble over at Affirm led to the company posting partial earnings on Twitter ahead of the scheduled release – hence retail traders wasted no time in sparking a sell-off on the back of a wider-than-expected loss.
Like the amalgam of recent company earnings, Affirm has also been a victim of inflationary pressures, aligning unfortunately with the company’s thorough marketing push. The 20% plunge has been easing moving towards the Friday market open, with the stock currently around 10% down. Affirm was one of the golden stocks to thrive during the pandemic, more than doubling its customer base over 2021, to a solid 11.2M users, with its number of partnered merchants also growing around 20-fold.
Where does Peloton fit into the scenario? A key feature of Affirm’s earnings release was its need to diversify its revenue streams. Over the pandemic, a key contributor to the company’s revenue was, in fact, another pandemic favorite – Peloton. The company received a third of its revenue from the once-thriving home exercise brand. So given Peloton’s story of demise, it’s critical that Affirm seek companies that offer strong, sustainable sales models. Backed up by Morgan Stanley, who can see Peloton accounting for less than 10% of Affirms revenue over fiscal 2022.
Crunching the numbers, Affirm’s revenue jumped 77% to $361M, however, the sell-off followed a wider quarterly loss of $160M from just $27M the previous year. Company operation costs also doubled to $557M as Affrim embarks on expensive marketing and advertising campaigns to try to remain a popular choice in the face of rising fintech competition.
Peloton’s involvement here is indicative of the potential of partnerships with large, emerging brands. The company’s active merchants jumped to 168,000 from 8,000 last year, but exponential growth needs to have the right direction. Locking in particular merchants could change everything for the company, so it isn’t surprising Affirm are stepping up their marketing game – they will certainly need it.
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Oliver is a financial writer and analyst specialising in the US stock market, with years of personal experience in understanding micro/macroeconomic structures, market trends and fundamental analysis.