Shares of Affirm (AFRM 8.01%), the buy now, pay later (BNPL) specialist, finished lower today as weak guidance from Shopify (SHOP 1.25%) seemed to overshadow an otherwise solid third-quarter earnings report from Affirm.
As a result, Affirm stock finished the session down 9.5%, while Shopify lost 18.9%.
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Shopify spoils Affirm's quarter
Affirm stock actually opened Wednesday's session higher, but those gains quickly turned into losses. Affirm's overall numbers were solid as gross merchandise volume (GMV) rose 36% to $6.3 billion, which drove revenue up 51% to $576.2 million, easily beating estimates at $549.4 million.
Revenue excluding transaction costs, another key metric, jumped 38% to $231 million. Active consumers increased by 13% to 18.1 million, or 18% excluding the discontinued Returnly business. Active merchants increased by 19% to 292,000, showing Affirm is gaining adoption on both sides of its marketplace.
On the bottom line, operating margin improved as it cut operating expenses by $85 million, and adjusted operating income jumped from a loss of $6 million to a profit of $79 million. On a generally accepted accounting principles (GAAP) basis, the company narrowed its loss of $0.69 per share in the quarter a year ago to $0.43, beating the consensus at a loss of $0.67.
While Affirm's results seemed to indicate the business is on the right track, Shopify's commentary about the upcoming quarter weighed on the stock and took investor attention away from Affirm's results. Shopify, a close partner of Affirm, gave revenue guidance for the second quarter that was below analyst estimates, indicating a possible slowdown in e-commerce demand, which could present problems for Affirm.
Is the sell-off justified?
Affirm shareholders are no doubt frustrated with the sell-off. Even the company's guidance for the fiscal fourth quarter was above the consensus. Affirm expects revenue of $585 million-$605 million, up 33.5% at the midpoint and ahead of the consensus at $576.3 million.
However, with the sell-off, investors seem unconvinced that Affirm can overcome weakness at a key partner like Shopify or in the broader e-commerce space. Affirm will have to prove it can do that to be rewarded. Its next earnings report could answer that question positively, but investors will have to be patient.
