Affirm SVP discusses holiday season, transaction costs

During a fireside chat with analysts from Piper, Rob O’Hare, a Senior Vice President at Affirm, stated in part according to a transcript of the event: “So for us, you know, if you at the end of November and then the peak holiday season continues into the first couple of weeks of December. And so what that does to our income statement from a profitability perspective, you know, if you think about the fact that we’re capturing a lot of GMV and capturing that GMV in the back half of the December quarter, we’ll recognize, obviously, all of that GMV that comes in. But from a revenue and transaction cost perspective, there can be some nuances. And so the first would be for the majority of our loans, you know, they tend to be interest-bearing in nature. And we recognize the revenue that comes from the interest income over the life of that loan, you know, as the interest is collected. And so in a period where you have a lot of volume come in, we do need to wait a quarter or two or three in some cases to recognize all of the interest income against those loans. So when you’re looking at revenue as a proportion or percentage of GMV, we will typically see some compression in Q2 in terms of our revenue take rate. So revenue divided by GMV. And we’ve tried to acknowledge that to reflect that in the outlook for the December quarter that we provided in our November earnings call. But that’s — that’s probably the most consistent and obvious compression that we see on the revenue side. When you’re thinking about transaction costs in our business. We have adopted CECL for provisioning for an allowance against all of the GMV that we underwrite and bring on to the platform. And so you’ll see us book an allowance against all of that GMV in the quarter that it’s originated. And so that will compress that will increase the amount of costs we have against that GMV. And like I said, on the revenue side, it will take a quarter or two or three for the interest income to come in against those same loans. So you sort of have this dynamic where revenue is a bit depressed from a timing perspective in quarter and then you’re taking all of the provision expense against those same loans in the same quarter. So that does increase transaction costs. And the combination of those two results in compression down at RLTC, which is revenue less transaction costs, particularly when you’re looking at it as a percentage of in-quarter GMV.”