Buy now, pay later company Affirm [AFRM] accidentally leaked some of its financial results to Twitter Thursday ahead of its scheduled quarterly earnings call.
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But that was about as good as it got for Affirm.
The stock briefly rose by as much as 10% following the errant tweet, with analysts and investors alike now anticipating a wholly positive earnings call. However, the full earnings report revealed widening quarterly losses that caused Affirm to miss big on earnings expectations, posting a loss per share of $0.57 versus a predicted $0.32 loss.
Now, following the full earnings report, Affirm is down over 20% with investors seemingly keen to jettison the stock. A forecast for the current quarter predicts growing volume, but lower revenue. Affirm had previously been heavily reliant on fitness equipment manufacturer Peloton [PTON] for over a third of its total revenue. While good work is being done to diversify revenue streams, Peloton’s struggles are still likely to affect Affirm’s top line.
Why does this matter to investors?
Financial stocks have already taken a big hit this year as market volatility has sent people away from growth stocks and towards more defensive businesses. Thursday's Twitter error arguably came at the worst possible time for a company in the financial services space. Affirm is now down almost 40% this year-to-date (YTD).
A recent partnership with Amazon [AMZN] should help steady the stock to some degree, but the company’s outlook of lower-than-expected revenue could indicate that Affirm isn’t taking as much of a margin from sales on the platform. The firm will be hoping the widespread exposure to Amazon’s massive customer base will offset these lower takes.
While the buy now, pay later space is certainly getting more competitive, Affirm remains one of the leading lights in the industry. If lower revenue is its trade-off for diversifying its streams of income and attracting more willing customers to the service, it could pay dividends over the coming quarters.
The instant sell-off following Thursday's earnings leak and weak outlook appears to be very reactionary. Not too much has actually changed within the company itself. Affirm still remains a solid way to expose your portfolio to the burgeoning buy now, pay later industry. However, if the company’s revenue growth remains an issue in its next quarterly earnings call, investors may need to take a closer look.
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