Expert voices: Affirm's profitability push and overall outlook

Affirm founder and CEO Max Levchin spoke last week with Axios about the company's march toward profitability and its wider-frame outlook.

Driving the news: Affirm surprised Wall Street with robust full-year results and strong guidance for its fiscal first quarter, pushing shares up more than 25% as a result.

This conversation has been edited for brevity and clarity.

The market had a pretty positive view of your most recent earnings report. What do you see driving that?

• The market reaction is certainly gratifying, but if I knew exactly what I was supposed to do to get more gratifying reactions from the market, I probably wouldn't actually change my behavior. So I'm going to keep building what I think we're supposed to be building.
• The market reaction is probably due to the fact that — in a sea of fintechs that are being left for dead and discounted as companies that don't have a clear path to things like profitability — we committed to being sustainably profitable on an operating basis last quarter, and [we] intend to repeat it.

What was behind that push toward profitability, particularly at a time when the market took a pretty drastic turn?

• It's only partially correlated to the market. The decision was, more than anything, the answer to the question, "How much dilution is one allowed to take as a shareholder of a publicly traded company to continue funding expansion?"
• Given our scale and our ability to generate revenue, the internal answer was, "I think we shouldn't. ... I think it's time for us to become self-sustainable."
• There are several more steps before we are [GAAP profitable], but in terms of not needing any more outside capital, this is one of the most important steps. So we took it very deliberately, with the point of view of both telling ourselves and the market, "Affirm is here to stay."

You showed hockey-stick-like growth for the Affirm Card, but on the earnings call, you mentioned some internal debate about how quickly you actually wanted it to grow. How do you manage the decisions around making a new product like this available and getting adoption for it?

• First of all, I think it's probably the coolest thing we've ever built, and it has great market demand. The flip side is, it's a brand-new thing. ... There's not really a single card for both debit and credit transactions in the U.S.
• Because we're building a brand new thing, where no one's really seen it here before ... and because it's a real credit product — which means that you could end up with fraud and credit losses and all kinds of stuff — to just let it off the leash and give one to everyone who wants it is risky.
• It'll be some time before we exhaust the users who want to give this thing a try, but we are pretty deliberate. We're very careful about not exposing ourselves to too much fraud or too much credit loss.
• Most importantly, we're just making sure the consumers we actually give this thing to understand how to use it, and we understand all the corner cases where we might have to explain ourselves a little bit better.

How has your usage evolved over time, since you got started mostly with financing big-ticket items, but we're hearing more and more that Affirm and BNPL products are being used for everyday purchases?

• It's definitely a moving target, because if you look at the trend lines and we looked at the average ticket size across the entire Affirm ecosystem ... you would see a steady decline in the average ticket size.

• People started with multithousand-dollar workout devices and went down to furniture and dresses, and now things like perfumes and even groceries. ... So the average size of transaction has gone down — and it took a giant step down as we launched the card.
• This decline in the average ticket is a very, very positive thing, from my point of view, because we're trying to convince consumers that they should be using this as their daily transaction card.
• I would very much rather average $10 per day or $100 per day or whatever the right number is for that consumer, because that means they really picked us as their card to pay for their subway tickets and the card for their Subway sandwich and things like that.

How has your underwriting changed, particularly at a time when credit card balances are at an all-time high and card issuers are tightening their access to credit?

• We're completely obsessed with making sure credit remains [available]. Last quarter, we demonstrated another really strong quarter of credit numbers. Credit is job zero, and nothing is more important than credit quality.
• We wanted to create [an] alignment of interests where if you're borrowing money and you're unable or unwilling to pay us back, the mistake is ours. We should not have lent to you, and it's on us to figure out where things went wrong and where we shouldn't be repeating this mistake.
• We're very much paying attention to what's going on outside our walls. ... We have spent a lot of time making sure that we're not going to be caught unawares in any of these economic scenarios.
• If the economy really tanks and there's not a soft landing but a hard one, undoubtedly, we will take appropriate actions to make sure that we don't overextend our consumers.
• [Because] any time we make a loan that we shouldn't have made, we are not just overextending someone who should not be borrowing money, we're also actively hurting ourselves.