Affirm shares drop 13% on weak forecast, concerns over CEO’s bet on 0% loans

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 will be between $815 million and $845 million. The midpoint of the range was short of the $841 million average analyst estimate, according to LSEG.

Levchin, who founded the company in 2012, is trying to bolster growth with 0% loans, a strategy he says gets consumers in the door and potentially turns them into long-time customers. Levchin told CNBC’s “Squawk Box” that it’s a way to build customer loyalty, even if it means sacrificing margins today.

“We are helping people understand that not paying interest, revolving interest, excessively is a good thing,” he said. “We’re taking share from credit 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, in part due to the surge in 0% APR loans. For the quarter, the company beat on earnings and delivered revenue that was inline with estimates.

Levchin said that despite economic uncertainty, consumers are continuing to spend and that Affirm’s credit performance remains “solid” and “consistent.”

“People are stressed out about the economy, yet they’re shopping, they’re buying, and they’re paying their bills — at 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 year, 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 due to 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 new partnerships, like a recent agreement with Costco.

Levchin emphasized the importance of playing the long game.

“It took consumers and merchants and sort of the universe about a decade to figure out what we are and just how different and important what we have found to work really is,” he told CNBC.

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