Max Levchin, co-founder of PayPal and chief executive officer of monetary technology company Affirm, arrives on the Sun Valley Resort for the annual Allen & Company Sun Valley Conference, in Sun Valley, Idaho.
Drew Angerer | Getty Images
Affirm shares plunged on Friday after the fintech company issued a weak forecast, and investors questioned CEO Max Levchin’s plan to go big in 0% loans.
The buy now, pay later lender said revenue this quarter can be between $815 million and $845 million. The midpoint of the range was wanting the $841 million average analyst estimate, in line with LSEG.
Levchin, who founded the corporate in 2012, is attempting to bolster growth with 0% loans, a technique he says gets consumers within the door and potentially turns them into long-time customers. Levchin told CNBC’s “Squawk Box” that it is a solution to construct customer loyalty, even when it means sacrificing margins today.
“We’re helping people understand that not paying interest, revolving interest, excessively is an excellent thing,” he said. “We’re taking share from bank cards.”
Those loans now make up 13% of Affirm’s total Gross Merchandise Volume (GMV), with 80% coming from prime and super-prime customers. Affirm’s core business involves issuing point-of-sale installment loans to consumers buying items like apparel, electronics and sporting goods.
While GMV topped analysts’ estimates, Affirm’s revenue less transaction costs (RLTC) missed the Street’s expectations, partially as a result of the surge in 0% APR loans. For the quarter, the corporate beat on earnings and delivered revenue that was inline with estimates.
Analysts at Residents maintained their market outperform rating on the stock, but noted in a report that the rise in 0% loans “led to a lower take rate and RLTC margin than most forecasts.” And analysts at BTIG, who’ve a buy rating on the stock, wrote that “Affirm shares are down precisely since the RLTC/take-rate weakness wasn’t offset by more rapid GMV growth.”
Levchin said that despite economic uncertainty, consumers are continuing to spend and that Affirm’s credit performance stays “solid” and “consistent.”
“Persons are stressed concerning the economy, yet they’re shopping, they’re buying, and so they’re paying their bills — at the very least they’re paying their bills back to us on time,” he said.
With Friday’s slide, Affirm shares are down about 22% for the yr, while the Nasdaq is off about 7%.
Some analysts remain bullish. Susquehanna, Bank of America, and TD Cowen all upgraded the stock or raised price targets as a result of what they see as growth potential.
Goldman Sachs maintained a buy rating on Affirm, calling it a “strong category leader in BNPL and a share gainer vs. legacy credit providers.”
Barclays, which has the equivalent of a buy rating, called the quarter a “solid print” despite high investor expectations. The firm cautioned that the stock could see short-term underperformance, but is bullish on latest partnerships, like a recent agreement with Costco.
Levchin emphasized the importance of playing the long game.
“It took consumers and merchants and form of the universe a couple of decade to determine what we’re and just how different and necessary what we’ve found to work really is,” he told CNBC.
WATCH: Affirm Holdings falls greater than 10% despite surprise beat
