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Affirm CFO: ‘We’re best equipped to handle’ economic stress

Affirm CFO Michael Linford joins Yahoo Finance Live to discuss company earnings; buy now, pay later; managing risk; investor sentiment; and the outlook for growth.

Video Transcript

BRIAN SOZZI: Welcome back. Buy now, pay later company Affirm posted a wider than expected loss on the bottom line last week but did see big growth with their consumers. Wall Street is taking the stock to task for a disappointing outlook, however. For more on this outlook, we welcome in Affirm CFO Michael Linford. Michael, good to see you.

No questions to you on Costco hot dogs. So you're good in that department. So take us through the Outlook for your business. Now, Wall Street is digging the stock a little bit here. What made you come out with that guidance?

MICHAEL LINFORD: Thanks for having me. Look, our guidance calls for really strong growth. We're posting two-year compounded growth rates in the 57% to 63% range despite the incredible macroeconomic volatility. I think investors should understand that we are in peak uncertainty. The question for us is, who's best equipped to handle that uncertainty? And we think it's us.

Last year, we did something unthinkable. We launched with over 40% of us e-commerce. And while we won't be repeating that, and therefore, the comparable period in our second quarter is pretty tough, we're showing really strong sequential growth. And we'll keep building our network. We don't think in quarters. We think much longer-term.

We've had our eye on a big network. And I think we've made a lot of progress on that. I think at the end of this year, we're going to look back and be very proud of the progress that we made.

BRAD SMITH: One of the things that we were discussing last week when trying to read into the environment for the consumer right now and really how they're navigating some of their spending to leaning further into to credit at this point in time, what does that signal to you about the long term, about when they will be able to get out of some of that debt that they may incur on the credit front? And BNPL just being one part of where they're setting up kind of that creative credit line, if you will.

MICHAEL LINFORD: Credit management and the consumer credit risk management is a core part of who we are at Affirm. We think this change in the cycle is an opportunity to distinguish Affirm from the also-rans. We've always said that risk management is a point of differentiation. And that's on full display right now. I think a really important question right now is, how are people going to manage the consumer stress that's out there.

I don't think the question anymore is, is there going to be stress in the consumer. I think Powell made that clear on Friday that we should expect that there is stress and will continue to be stress. So why can we manage it differently is the question? And we have a few advantages.

First, our asset is really short in term length. And therefore, our weighted average life is short. Allows us to operate very nimbly. We underwrite every transaction. So we're unencumbered with prior decisions when we make a future decision. And our credit outcomes can be changed very quickly.

We're not limited to straight approval and decline decisions. We can change down payments and term lengths. We can use additional underwriting signals, or we can even offer different products. And we think that's all really important to do in a time when the consumer is beginning to feel the stress of the macroeconomic change.

And while we're very early in this cycle, we are proving it. Last quarter demonstrated that despite the sharp change in rates and the beginning signs of stress for the consumer, we managed it. We posted unit economics that were above our long term outlook. And so I think we're proving right now that we're best equipped to manage the stress that the consumer is going to go under through the cycle.

BRIAN SOZZI: So assuming, Michael, that economic growth stays where it is, maybe worsens a little bit, do you still hit profits over the next 12 months?

MICHAEL LINFORD: Yeah, we reiterated our desire and commitment to get to adjusted operating income profitability by the end of this year on a sustainable basis. I think that our guidance definitely assumed that the current level of stress would persist. It did not assume any worsening, nor did it assume that it got any better. But we don't think that's the biggest driver for our outlook right now.

The biggest driver for our outlook is what we can control. And given our strong levers that we have around the credit side, we're not particularly worried about it. What we're focused on right now is making sure that we're managing risk, monitoring it like a hawk, and still building awesome technology products that delight consumers.

BRIAN SOZZI: In this climate with so much scrutiny on expenses, have you pulled back on any certain projects?

MICHAEL LINFORD: No, we haven't. And I think one of the things we talked about on the call is we are going to be continuing investing in technology, that means our product and engineering resources to build the awesome things that we do. I do think you're going to see us moderate our sales and marketing investments more in line with activity in the business. And you're going to see some leverage, we think, in our GMA lines.

But Affirm is positioned so well in this market that we don't feel like we need to pull back on how we're scaling the business. We simply need to walk into the opportunity that's in front of us.

BRAD SMITH: Affirm shares one of the tickers that had been caught up earlier this year within the broader kind of retail trading frenzy that resurged even after the highs of what we'd seen in 2021. And every company has had a different strategy to try and engage with this new cohort of traders and investors. And is that something that the Affirm executive team, that you think about, that you have to now put a strategy around how you really kind of maintain that attention of potential customers too?

MICHAEL LINFORD: Yeah, that's right. I think about our retail shareholder base is also consumers of our product. And therefore, they're doubly important. And yes, I think we do put an extra emphasis on trying to find ways to talk to that investor. It's hard.

I think we can always meet with institutional investors, and we do. And so we try to create events that are retail-focused. And I think we have one, either we have announced or we'll be announcing soon, hosted with Say Technologies, that will be trying to get to the retail shareholder. I think the retail shareholder is extremely important to a company like Affirm, whose mission is so aligned to things that retail shareholders care about.

We put the consumer first. We are out to change the world for the better. And that message definitely resonates with the retail shareholder.

BRIAN SOZZI: Lastly, Michael, every analyst note that I continue to read on Affirm is generally positive. They like your company. What is going on here with the stock?

MICHAEL LINFORD: Yeah, I think that there's three areas that Affirm really shines. And time will ultimately prove us right. We're really good at risk management. We're really good at capital markets. And we are really good at building technology products that delight consumers.

As a newly public company, I think folks have been lumping us in with other players who can't access capital or manage credit. And frankly, they were wrong. We did it last quarter, and we're going to keep doing it through the cycle. We're confident that our success in these areas will continue throughout the cycle.

And if you'll have me, I'll be on every quarter with you, telling the exact same story. Last quarter, we added $1.6 billion of net new funding capacity. And the analysts see that. I think folks who are lumping us in with others are in disbelief. They're more concerned with the fear of what might happen than the results of what actually has happened.

And I think time ultimately solves that. Our credit outcomes remain under our control. Stress is going to happen. The question is how you manage it. And last quarter, we managed it very well. And we're going to keep doing it throughout this year. And nobody should doubt our ability to build tech products.

BRAD SMITH: Affirm CFO Michael Linford, thanks so much for joining us here this morning and for the time today.