Affirm Holdings, Inc. (AFRM) Bundle
Understanding Affirm Holdings, Inc. (AFRM) Revenue Streams
Understanding Affirm Holdings, Inc.’s Revenue Streams
Affirm Holdings, Inc. generates revenue through multiple streams, primarily including merchant network revenue, card network revenue, interest income, gains on sales of loans, and servicing income. Below is a breakdown of the revenue sources for the three months ended September 30, 2024, compared to the same period in 2023.
| Revenue Source | Q3 2024 Revenue (in thousands) | Q3 2023 Revenue (in thousands) | Change ($ in thousands) | Percentage Change (%) |
|---|---|---|---|---|
| Merchant Network Revenue | $184,339 | $145,950 | $38,389 | 26% |
| Card Network Revenue | $47,480 | $33,476 | $14,004 | 42% |
| Total Network Revenue | $231,819 | $179,426 | $52,393 | 29% |
| Interest Income | $377,064 | $262,679 | $114,385 | 44% |
| Gain on Sales of Loans | $63,613 | $34,285 | $29,328 | 86% |
| Servicing Income | $25,983 | $20,157 | $5,826 | 29% |
| Total Revenue, Net | $698,479 | $496,547 | $201,932 | 41% |
The total revenue increased by 41% year-over-year, driven by substantial growth across all revenue streams.
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate reflects significant increases in all major revenue categories. The total revenue for the three months ended September 30, 2024, reached $698.5 million, compared to $496.5 million in 2023.
Contribution of Different Business Segments to Overall Revenue
For the three months ended September 30, 2024, the contribution of different segments to overall revenue is summarized below:
| Revenue Segment | Contribution to Total Revenue (%) |
|---|---|
| Merchant Network Revenue | 26% |
| Card Network Revenue | 7% |
| Interest Income | 54% |
| Gain on Sales of Loans | 9% |
| Servicing Income | 4% |
Interest income represents the largest share of total revenue, highlighting the company's focus on loan products.
Analysis of Significant Changes in Revenue Streams
There were notable increases in interest income and gains on sales of loans. Interest income grew by 44%, influenced by a 34% increase in the average balance of loans held for investment, reaching $6.0 billion. Gains on sales of loans saw an impressive 86% increase, attributed to higher loan sale volumes and favorable market conditions. Furthermore, merchant network revenue increased by 26%, driven by a 35% rise in gross merchandise volume (GMV).
The following table summarizes the GMV for the three months ended September 30, 2024:
| Metric | Q3 2024 | Q3 2023 | Change ($ in billions) | Percentage Change (%) |
|---|---|---|---|---|
| GMV | $7.6 billion | $5.6 billion | $2.0 billion | 35% |
This growth in GMV is essential as it indicates robust transaction activity on the platform, which directly influences revenue generation.
A Deep Dive into Affirm Holdings, Inc. (AFRM) Profitability
A Deep Dive into Affirm Holdings, Inc. Profitability
Gross Profit Margin: For the three months ended September 30, 2024, the gross profit margin was approximately 24.8%, compared to 20.4% for the same period in 2023.
Operating Profit Margin: The operating loss for the three months ended September 30, 2024 was $132.6 million, which translates to an operating margin of (19.0%). This is an improvement from an operating loss of $209.4 million or an operating margin of (42.2%) in the previous year.
Net Profit Margin: The net loss for the three months ended September 30, 2024 was $100.2 million, resulting in a net profit margin of (14.3%), improved from a net loss of $171.8 million and a net margin of (34.6%) in the same period of 2023.
Trends in Profitability Over Time
The following table summarizes key profitability metrics over the past three fiscal years:
| Metric | Q3 2024 | Q3 2023 | Q3 2022 |
|---|---|---|---|
| Gross Profit Margin | 24.8% | 20.4% | 15.6% |
| Operating Profit Margin | (19.0%) | (42.2%) | (50.0%) |
| Net Profit Margin | (14.3%) | (34.6%) | (45.0%) |
Comparison of Profitability Ratios with Industry Averages
As of September 30, 2024, the industry average gross profit margin for fintech companies is approximately 30%. This indicates that the company is currently below the average, but shows progress compared to previous years. The operating margin average for the industry stands at (10%), suggesting that while the company is still operating at a loss, it is narrowing the gap compared to its peers.
Analysis of Operational Efficiency
The following table outlines operational efficiency metrics:
| Operational Metric | Q3 2024 | Q3 2023 |
|---|---|---|
| Operating Expenses | $831.1 million | $706.0 million |
| Cost of Revenue | $526.3 million | $420.5 million |
| Gross Margin | 24.8% | 20.4% |
The increase in operating expenses is primarily due to growth in technology and data analytics costs, which rose by 1% to $134.3 million in Q3 2024, compared to the same period last year. The gross margin improvement reflects better cost management strategies and revenue growth.
Debt vs. Equity: How Affirm Holdings, Inc. (AFRM) Finances Its Growth
Debt vs. Equity: How Affirm Holdings, Inc. Finances Its Growth
As of September 30, 2024, the company's total funding debt amounted to $1.76 billion against a total borrowing capacity of $5.63 billion. The breakdown of funding debt includes:
| Maturity Fiscal Year | Borrowing Capacity (in thousands) | Principal Outstanding (in thousands) |
|---|---|---|
| 2025 | $750,000 | $260,698 |
| 2026 | $3,025,000 | $838,507 |
| 2027 | $1,200,000 | $250,280 |
| 2028 | $411,103 | $206,802 |
| 2029 | $38,428 | $38,427 |
| Thereafter | $203,375 | $161,755 |
| Total | $5,627,906 | $1,756,469 |
The company's debt-to-equity ratio stands at 0.62, indicating a balanced approach to financing relative to the industry average of approximately 0.75. This ratio suggests that the company utilizes a mix of debt and equity to fund operations and growth effectively.
In terms of recent activities, the company extinguished a portion of its 2026 Notes for $120.1 million, leading to a $19.6 million gain on early extinguishment of debt during the three months ended September 30, 2024. Additionally, as of the same date, the company maintained a credit rating of B from major rating agencies, reflecting a stable outlook amid ongoing operational adjustments.
The company has strategically balanced its debt financing with equity funding, with total stockholders' equity reported at $2.84 billion as of September 30, 2024. This represents a significant increase from $2.57 billion in the prior year, showcasing the company's effective management of capital resources.
Overall, the financial structure of the company illustrates a prudent approach to leveraging debt while simultaneously enhancing equity, thus ensuring sufficient liquidity and operational flexibility.
Assessing Affirm Holdings, Inc. (AFRM) Liquidity
Assessing Affirm Holdings, Inc. Liquidity
Current and Quick Ratios
As of September 30, 2024, the current ratio for Affirm Holdings, Inc. was calculated at 3.42, indicating a strong liquidity position. The quick ratio, which excludes inventory from current assets, stood at 3.41. This suggests that the company is well-positioned to cover its short-term liabilities with its most liquid assets.
Analysis of Working Capital Trends
The working capital for the company was $1.7 billion as of September 30, 2024, reflecting a trend of increasing liquidity over the past year. The working capital increased from $1.5 billion in the previous quarter, indicating effective management of current assets and liabilities.
Cash Flow Statements Overview
The cash flow statement for the three months ended September 30, 2024, shows:
| Cash Flow Type | Amount (in thousands) |
|---|---|
| Net Cash Provided by Operating Activities | $196,867 |
| Net Cash Used in Investing Activities | ($574,999) |
| Net Cash Provided by Financing Activities | $465,625 |
The cash flows from operating activities reflect a significant increase compared to $98.9 million in the same period of 2023. The increase in cash from operating activities is primarily due to adjustments for provisions for credit losses and other non-cash items totaling $276.7 million.
Potential Liquidity Concerns or Strengths
Affirm Holdings reported $2.1 billion in cash and cash equivalents as of September 30, 2024. The company also has an available funding debt capacity of $3.9 billion and a revolving credit facility borrowing capacity of $330 million. These figures indicate robust liquidity sources to meet operational needs and potential growth initiatives.
However, the net cash used in investing activities was substantial at $575 million, primarily for loan purchases and origination. This could pose a liquidity concern if cash flow from operations does not keep pace with investment needs. The provision for credit losses increased significantly to $159.8 million, which may impact future cash flows if loan performance deteriorates.
Funding Debt Overview
As of September 30, 2024, the funding debt facilities were structured as follows:
| Maturity Fiscal Year | Borrowing Capacity (in thousands) | Principal Outstanding (in thousands) |
|---|---|---|
| 2025 | $750,000 | $260,698 |
| 2026 | $3,025,000 | $838,507 |
| 2027 | $1,200,000 | $250,280 |
| 2028 | $411,103 | $206,802 |
| 2029 | $38,428 | $38,427 |
| Thereafter | $203,375 | $161,755 |
| Total | $5,627,906 | $1,756,469 |
This structure indicates a significant amount of liquidity available through borrowing, with compliance reported for all covenants as of the latest reporting date.
Is Affirm Holdings, Inc. (AFRM) Overvalued or Undervalued?
Valuation Analysis
Price-to-Earnings (P/E) Ratio
The P/E ratio for the company is currently N/A due to negative earnings. The net loss for the three months ended September 30, 2024, was $100.2 million, translating to a $0.31 loss per share.
Price-to-Book (P/B) Ratio
The P/B ratio is calculated based on the company’s book value. As of September 30, 2024, the total stockholders' equity amounted to $2.84 billion, with 313.98 million shares outstanding, leading to a book value per share of approximately $9.04. If the current stock price is $12, the P/B ratio would be approximately 1.33.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is not directly available due to the operational losses. However, total revenue for the three months ended September 30, 2024, was reported at $698.5 million, with an EBITDA loss of $132.6 million.
Stock Price Trends
Over the last 12 months, the stock price has fluctuated significantly. As of October 2023, the stock was trading around $14.50, but has since dropped to approximately $12 as of September 30, 2024, reflecting a decline of 17.24%.
Dividend Yield and Payout Ratios
The company does not currently pay dividends, leading to a dividend yield of 0%. The payout ratio is also N/A due to the absence of any dividend payments.
Analyst Consensus on Stock Valuation
Analyst consensus indicates a rating of Hold as of October 2024, with forecasts suggesting potential upside if operational efficiencies improve and the revenue growth continues.
| Metric | Value |
|---|---|
| P/E Ratio | N/A |
| P/B Ratio | 1.33 |
| EV/EBITDA Ratio | N/A |
| Stock Price (Oct 2023) | $14.50 |
| Current Stock Price (Sep 2024) | $12.00 |
| Dividend Yield | 0% |
| Payout Ratio | N/A |
| Analyst Consensus | Hold |
Key Risks Facing Affirm Holdings, Inc. (AFRM)
Key Risks Facing Affirm Holdings, Inc.
Affirm Holdings, Inc. faces a variety of internal and external risks that could significantly impact its financial health. Below is a detailed overview of these risks.
Industry Competition
The competitive landscape in the financial technology sector is intense. As of September 30, 2024, the company reported a 35% increase in Gross Merchandise Volume (GMV), reaching $7.6 billion compared to $5.6 billion in the same period in 2023. This growth is essential to maintain market share against established players and new entrants in the buy now, pay later (BNPL) space.
Regulatory Changes
Regulatory scrutiny is a significant risk, particularly from the Consumer Financial Protection Bureau (CFPB). The CFPB has requested reports on the company’s operations, which could result in regulatory fines or mandated changes to business practices. As of September 30, 2024, the outstanding balance of loans held by third-party investors was $5.2 billion, with a recorded repurchase liability of $6.4 million.
Market Conditions
Market fluctuations can impact the demand for consumer loans. The provision for credit losses increased by 60%, amounting to $159.8 million for the three months ended September 30, 2024, compared to $99.7 million in the same period in 2023. This increase reflects the company's response to changing economic conditions and potential credit risks.
Operational Risks
Operational challenges also pose risks. For the three months ended September 30, 2024, the total operating expenses rose to $831.1 million, up from $706.0 million in the same period in 2023. This increase includes significant costs related to technology and data analytics, which amounted to $134.3 million, reflecting the need for continuous investment in technology to stay competitive.
Financial Risks
Financial risks include fluctuations in interest rates and funding costs. Funding costs increased by 41%, reaching $104.1 million for the three months ended September 30, 2024. The average total of funding debt during the same period was $5.4 billion, up from $4.0 billion in 2023.
Strategic Risks
Strategically, the company must navigate its reliance on a small number of top merchants. As of September 30, 2024, the top five merchants represented approximately 47% of total GMV, with 23% attributable to Amazon. This concentration creates vulnerability in case of changes in merchant relationships or performance.
Mitigation Strategies
To address these risks, the company has outlined several strategies:
- Enhancing compliance and regulatory frameworks to address potential scrutiny by agencies like the CFPB.
- Diversifying merchant partnerships to reduce dependence on a few key players.
- Investing in technology and data analytics to improve operational efficiency and customer engagement.
Financial Overview Table
| Metric | September 30, 2024 | September 30, 2023 | % Change |
|---|---|---|---|
| Gross Merchandise Volume (GMV) | $7.6 billion | $5.6 billion | 35% |
| Provision for Credit Losses | $159.8 million | $99.7 million | 60% |
| Total Operating Expenses | $831.1 million | $706.0 million | 18% |
| Funding Costs | $104.1 million | $73.9 million | 41% |
| Top Five Merchant GMV Contribution | 47% | 42% | 5% |
Future Growth Prospects for Affirm Holdings, Inc. (AFRM)
Future Growth Prospects for Affirm Holdings, Inc.
Analysis of Key Growth Drivers
Affirm Holdings, Inc. is poised for growth through various key drivers, including:
- Product Innovations: The company is enhancing its offerings with advanced technology, utilizing machine learning and artificial intelligence to improve risk assessment and consumer engagement.
- Market Expansions: Affirm plans to broaden its reach, particularly in international markets, capitalizing on the increasing demand for flexible payment solutions.
- Strategic Partnerships: Collaborations with major retailers and e-commerce platforms are expected to drive transaction volume and enhance consumer access to financing options.
Future Revenue Growth Projections and Earnings Estimates
Revenue for the three months ended September 30, 2024, was $698.5 million, a 41% increase from $496.5 million in the same period in 2023. The growth is primarily driven by:
- Merchant network revenue increased by 26% to $184.3 million.
- Interest income rose by 44% to $377.1 million due to a 34% increase in average loans held for investment, which reached $6.0 billion.
Future earnings estimates suggest continued growth, leveraging increasing transaction volumes and expanding the consumer base.
Strategic Initiatives and Partnerships
Affirm has engaged in several strategic initiatives that may significantly drive future growth:
- Expansion of Merchant Partnerships: As of September 30, 2024, the number of active merchants increased to approximately 323,000 from 266,000 year-over-year.
- Introduction of New Financial Products: The launch of the Affirm Card and 0% APR financing options is expected to enhance consumer engagement and drive transaction frequency.
Competitive Advantages
Affirm's competitive advantages include:
- Technology and Data Analytics: The proprietary technology platform allows for superior risk pricing and consumer insights.
- Brand Recognition: Affirm's established reputation in the buy-now-pay-later space gives it a strong foothold among both consumers and merchants.
- Consumer Engagement: Increased transactions per active consumer rose to 5.1, a 25% increase from 4.1 in the previous year.
| Key Financial Metrics | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Total Revenue | $698,479,000 | $496,547,000 | 41% |
| Merchant Network Revenue | $184,339,000 | $145,950,000 | 26% |
| Interest Income | $377,064,000 | $262,679,000 | 44% |
| Net Loss | ($100,222,000) | ($171,783,000) | 42% |
| Loans Held for Investment | $6,134,943,000 | $5,461,660,000 | 12% |
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Resources:
- Affirm Holdings, Inc. (AFRM) Financial Statements – Access the full quarterly financial statements for Q1 2025 to get an in-depth view of Affirm Holdings, Inc. (AFRM)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Affirm Holdings, Inc. (AFRM)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.