Shares of Affirm Sink After Earnings are Missed by 19%

Affirm announced on Wednesday that it would be laying off 19% of its employee base. Earlier this month, the company announced that both its top-line and bottom-line earnings for the second quarter fell short of analyst estimates. There was a drop of over 17% in shares after hours for the company.

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Founder and CEO Max Levchin, in his letter to shareholders, referred to this decision as "the single most difficult one" of all the cuts that the company chose to make in the past year, and said that the layoffs would be effective that same day.

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Based on the company's June 20, 2022 employee count of 2,552, the layoffs will impact approximately 485 employees, according to Affirm.

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According to a message Levchin sent to employees earlier on Wednesday, which he later shared publicly, he said that during the early days of the pandemic, the company "consciously hired ahead of revenues needed to support the size of the team," which was justified by the growth of the company's revenue. "Everything changed at the beginning of the second half of 2022," Levchin said, pointing to the Federal Reserve's policy which he said has dampened consumer spending and led to a dramatic increase in the company's borrowing costs. Levchin wrote in his article that the root cause of where we are today is that I acted too slowly as these macroeconomic changes unfolded.

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In its fiscal second quarter of 2023, the company reported a loss per share of $1.10, compared to analyst expectations of a loss of 98 cents per share, according to Refinitiv. Refinitiv also reported that the company missed expectations for revenue for the quarter. According to Refinitiv, the company reported $400 million in revenue for the quarter, compared to analyst expectations of $416 million.

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In his letter to shareholders, Levchin stated that Affirm expects to keep its headcount “essentially flat for the foreseeable future.”

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“FQ2′23 saw us refocus our R&D efforts on margin-improving projects, repeat consumer engagement, and Debit+, and we plan to continue pursuing this focused strategy for several quarters,” Levchin said.

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It was announced by Levchin to employees that laid-off workers in the United States would receive a minimum of 15 weeks base pay as severance, plus an extra week for each year of employment. A $5,000 health stipend would also be offered to laid-off U.S. workers regardless of whether they had enrolled in healthcare plans, covering six months of employee healthcare coverage. All non-U.S. workers will be entitled to severance and health care benefits in accordance with local practices, according to Levchin.

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It is expected that those workers who are dependent upon an employer-sponsored visa will continue to be employed by Affirm until April 30, according to Levchin, and they will also be able to access one-on-one immigration counseling through Affirm. As part of his announcement, Levchin also suggested that laid-off workers could keep their Affirm-issued devices to help them in their job search, as well as access three months of career advice and an alumni directory while they are looking for a new job.