Affirm Holdings Explores Growth Opportunities in Travel Industry
2023-07-30
The company's earning call meeting focused on the growth opportunities in the travel industry, specifically in airline purchases and hotels. The CEO, Max Levchin, emphasized the importance of partnerships and tailored product offerings, as well as the company's long-term growth strategy. Levchin mentioned that the travel industry is a great opportunity for the company to apply their expertise and that airlines and hotels are currently the least penetrated verticals from their point of view. They have already established partnerships with online travel agencies and are now working on direct integrations with airlines. Levchin emphasized the importance of building a product that is fine-tuned to the specific needs of the industry and creating unique products that are difficult for others to replicate.
The market outlook suggests that merchants are currently focused on managing costs and scrutinizing any additional expenses. However, they are also looking for ways to regain growth in volume, particularly during the holiday season and early next year. The company aims to provide the necessary economist support to drive the volume needed by merchants, although they do acknowledge that merchants have real margin constraints at the moment.
In terms of the declining reserve rate, the company does not rely on a team of economists to forecast consumer behavior. Instead, they analyze the actual performance of loans and use credit scores to predict loan performance. They emphasize that their approach is math-driven and not based on judgment or future trend predictions. The company has observed a reduction in credit losses and higher-quality assets, leading to less need for reserves.
The key drivers of the business discussed in the meeting were interest rates, agreements and pricing, operating margin, and consumer behavior.
The company highlighted their ability to control transactions, including down payment requirements, and their use of various levers to manage risk. They actively monitor and adjust credit to meet their desired numbers, which they see as a competitive advantage in the industry. The company also emphasized the increasing demand for their services, particularly in the lower income brackets, as evidenced by their 85% repeat transaction rate.
The company's outlook for the quarter/year is focused on achieving profitability by the first day of their fiscal year 2024. They are confident in their ability to reach this goal and are on track to do so. The company is prioritizing maximizing unit economics, controlling operating expenses, and ensuring that their revenue less transaction costs exceeds their adjusted operating expenses. They are also focusing on risk management and maintaining strong credit results. The company sees the current economic uncertainty as an opportunity to solidify their position as a trusted and reliable partner to consumers and merchants.
The company has made significant progress on its strategic initiatives. They have achieved a nearly threefold increase in revenue less transaction costs and have successfully controlled their credit results, with delinquencies and net charge-offs remaining stable or even lower than pre-pandemic levels. The company is actively managing risk and transaction costs to ensure strong unit economics and is also investing in product opportunities and strengthening relationships with consumers and merchants. They view the current economic uncertainty as a chance to further establish themselves as a trusted and dependable partner.
The participants of the call included Max Levchin, the Founder and Chief Executive Officer of the company, as well as Zane Keller, the Director of Investor Relations. Analysts from various financial institutions such as Morgan Stanley, Credit Suisse, Barclays, Goldman Sachs, Truist Securities, J.P. Morgan, D.A. Davidson, Piper Sandler, Deutsche Bank, Bank of America Merrill Lynch, MoffettNathanson, and SMBC Nikko Securities also participated in the meeting, representing a wide range of perspectives and expertise in the financial industry.
The company discussed the potential of raising merchant fees in the meeting. They have not yet increased prices for consumers or merchants, but they acknowledge that they may need to pass on increased costs to customers in the future. The process for raising merchant fees varies depending on the type of partnership with the merchants. For directly integrated merchants, the company provides notification and follows contractual timelines for price changes. The response from merchants may vary, with some potentially negotiating or reacting differently based on their own pricing strategies. The company believes they have the ability to command the price for their products and adjust for fluctuations in supply.