Federal Employees’ Shopping Enthusiasm Wanes

Affirm CEO Max Levchin, speaking on CNBC’s “Squawk on the Street” Friday, indicated a nuanced impact from the recent government shutdown on consumer behavior. While the buy now, pay later (BNPL) giant isn’t witnessing widespread credit defaults among federal employees, Levchin noted a “subtle loss of interest in shopping” within that specific demographic, a decline he quantified as “a couple of basis points.” This observation comes amidst an extended government shutdown that has furloughed hundreds of thousands of federal workers and left many more working without pay, raising concerns about the broader economic fallout.

Levchin emphasized that Affirm is closely monitoring employment data for signs of further disruptions. He reassured investors that the company possesses the agility to adjust its credit standards proactively should the need arise. While acknowledging the potential for future volatility, Levchin conveyed confidence in the current state of affairs, stating, “Right now, things are just fine. We’re not seeing any major disturbances at all.”

The BNPL sector, while experiencing rapid growth and increased adoption, is not immune to macroeconomic pressures. Government shutdowns, like the current one, introduce uncertainty into the economic landscape, impacting consumer confidence and spending habits. The decline in shopping interest among federal employees, however subtle, underscores the sensitivity of the sector to such external factors.

Levchin’s commentary follows Affirm’s impressive fiscal first-quarter earnings report, which significantly exceeded Wall Street’s projections. The company reported earnings of 23 cents per share on $933 million in revenue, surpassing analyst expectations of 11 cents per share on $883 million in sales. The robust performance was further bolstered by a 34% year-over-year increase in revenue and a 42% surge in gross merchandise volume (GMV) to $10.8 billion, exceeding the estimated $10.38 billion.

Affirm’s success is attributable, in part, to its strategic partnerships with major e-commerce players. The company recently extended its collaboration with Amazon through 2031 and maintains strong relationships with platforms like Shopify and Apple. These partnerships provide Affirm with access to a vast customer base and further solidify its position in the fiercely competitive BNPL market.

However, Affirm’s dominance is not unchallenged. The company recently lost Walmart as a partner to Klarna, highlighting the intensifying competition within the sector. Klarna, following its recent IPO, is aggressively vying for market share, leveraging its technological innovations and expanded service offerings. This competitive landscape necessitates continuous innovation and strategic adaptation for BNPL providers like Affirm to maintain their edge.

Looking ahead, Affirm raised its full-year outlook, anticipating gross merchandise volume to reach $47.5 billion, compared to its previous projection of $46 billion. This revised guidance reflects the company’s confidence in its ability to capitalize on the ongoing growth of the BNPL market and its strategic initiatives to expand its reach and offerings. Specifically, Levchin indicated a particular strength in categories like ticketing and travel, suggesting that consumer spending priorities are shifting.

Levchin championed the merits of the BNPL model, emphasizing its value proposition for consumers. “We’re every single day out there preaching the gospel of buy now, pay later being the better way to buy, and consumers are obviously responding,” he stated. Affirm’s active consumer base has grown significantly, reaching 24.1 million, up from 19.5 million a year ago, demonstrating the increasing appeal and adoption of BNPL solutions.

The company’s stock reflected investors’ optimism, rising 11% on Friday, signaling a positive market sentiment towards Affirm’s future prospects in the evolving fintech landscape.