Buy now-pay later provider Affirm plans to pull back on hiring in an effort to rightsize the company as it battles challenging economic conditions.
The San Francisco-based company disclosed the strategic shift when it announced fiscal first-quarter results Tuesday for the three months ended Sept. 30.
“We are meaningfully reducing our hiring plan for the remainder of FY’23,” the company said in a shareholder letter Tuesday in which it also reported fiscal first-quarter results. “We anticipate this will drive significant savings beginning next fiscal year.”
While the company has already begun pulling back on hiring in support functions, it still plans to keep adding product development, technology and data analytics workers. “We are also focused on filling a large portion of the remaining hires in lower-cost geographies, such as our engineering center in Poland,” Affirm said in the letter.
The company also recently cut some employees, according to the social media site LinkedIn, which cited posts from workers that were dismissed.
"Affirm continuously takes steps to ensure that we are best positioned for the future,” a spokesperson for the company said. “In light of the evolving macroeconomic environment and uncertainties, we are reallocating resources to focus on our most promising opportunities to drive growth and achieve profitability. In connection, we have made the decision to eliminate a small number of roles, which we will look to redeploy across the company.”
“The focus for us is to get our units as healthy as possible and to get the operating expense as right-sized as we can going into next fiscal year when we feel like we want to be as fit and lean and strong as possible,” the company’s chief financial officer, Michael Linford, said during a call with analysts to discuss the earnings.
Other fintechs have cut pared workforces in recent months, pointing to the worsening economic environment, including Swedish BNPL rival Klarna and digital payments company Stripe.
Affirm had 2,552 employees as of June 30, according to its annual filing with the Securities and Exchange Commission in August.
The company said its first-quarter net loss narrowed to $251.3 million, from a loss of $306.6 million in the year-ago period. Revenue jumped 34% to $361.6 million.
Linford noted in the letter that the company was able to grow despite the “challenging macroeconomic environment.” “Against a backdrop of rising interest rates and declining consumer sentiment, Affirm grew (gross merchandise volume) by 62% year over year while maintaining strong unit economics.”
Affirm is focused on a profitability metric equal to revenue less transaction costs, which for the most recent quarter was $18 million short of profitability. It aims to turn that to a positive figure for its fiscal year ending next June.
Affirm “acknowledged that higher (interest) rates are pressuring funding costs and gain on sale of loans,” Jason Kupferberg, an analyst with Bank of America Merrill Lynch, said in a note to the financial firm’s clients. “Importantly however, (Affirm) reaffirmed its commitment to being consistently profitable (on an adj. basis) by the end of fiscal year 2023.”
Peloton sales decline
Affirm has benefited from its ties to online retail juggernaut Amazon, but it has been hurt by sagging sales at another top customer, Peloton, a maker of stationary exercise bikes whose popularity has waned with the ebbing of the COVID-19 pandemic.
Peloton accounted for less than 2% of Affirm’s gross merchandise value in the first quarter, compared to 23% in fiscal year 2020, according to the company's letter to shareholders.
“The sporting goods and outdoor category underperformed driven largely by headwinds impacting Peloton and other connected fitness merchants,” the company’s shareholder letter said. Conversely, general merchandise and travel sales were stronger, the letter said.
Generally, the company’s CEO believes that demand for the company’s services will grow in an environment where consumers are more cost-conscious.
“Our merchants really depend on us in these inflationary times because consumers need to stretch their dollar and we're there for them,” Chief Executive Max Levchin asserted during the earnings conference call.
Correction: This story has been updated to show that Affirm did provide a comment, and it is included.