What happened
Shares of the buy now, pay later (BNPL) company Affirm Holdings (AFRM 1.42%) fell more than 15% today after the company raised its guidance but also had to reportedly halt a bond sale last week.
So what
Affirm today raised its outlook for the third fiscal quarter of 2022 (the current quarter) and the full fiscal year of 2022, which ends on June 30. For the third quarter, Affirm essentially just said that it plans to at least hit the top end of the guidance it previously provided on Feb. 10.
Management now expects Affirm to see third-quarter gross merchandise volume (GMV) of at least $3.71 billion, revenue of at least $335 million, and revenue less transactions costs of at least $148 million, which is $5 million more than the top end of its previous guidance. The adjusted operating loss as a percentage of revenue in the third quarter is expected to come in around 15%, which is a solid improvement from the 19% loss at the top end of previous guidance.
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For the full fiscal year, the new guidance is also largely at the top end of previous guidance. Management expects the fintech to generate full-year GMV of at least $14.78 billion, revenue of at least $1.31 billion, and revenue less transaction costs of at least $600 million, which is $5 million higher than the top end of previous guidance. Full-year adjusted operating loss as a percentage of revenue is expected to come in at 11% to 13%. Previous guidance was for a loss of 12% to 14%.
In other news, Bloomberg last week reported that Affirm stopped the sale of an asset-backed securities offering, which is a pool of loans packaged together. Citing anonymous sources, Bloomberg reported that a significant investor backed out at the last second due to market volatility. Investors of the asset-backed securities are essentially paid from the cash flows of Affirm customers paying off their loans.
Now what
With consumers considered to be in strong shape during the pandemic, due to stimulus checks and increased savings, investors were more than willing to buy up these kinds of bonds. But as volatility has intensified and as consumers face sustained high inflation and rising interest rates, the market is very worried about consumer debt.
In addition, other reports came out last year when conditions were much more benign that said about one-third of BNPL borrowers in the U.S. had missed at least one of their payments. Regulators have also been requesting data on the large BNPL players like Affirm.
While the new guidance is positive, it isn't a huge game-changer from previous guidance. Meanwhile, the halted bond sale is much more worrying and could spell trouble for others in the space that also pool loans and sell them to investors.
