Toast is marching towards profitability
Fintech Headlines for May 9, 2023: Toast is marching towards profitability, Affirm keeps losing money, leans towards interest-bearing loans, and Upstart's stock rallies despite a terrible quarter
The phrase “when it rains, it pours” popped up in my head, when I looked at yesterday’s earnings schedule. And I don’t mean the earnings were bad (most of them were ok), but there were just too many Fintech companies reporting their first quarter results on the same day. I love them all, but today I will focus on three:
Toast raised its full-year guidance and now expects to become profitable on an adjusted basis by year-end,
Affirm reported $310 million in operating losses for the quarter, continued leaning towards interest-bearing loans, and
Upstart reported a terrible quarter, yet the expectations were worse, so the stock rallied 40% in the after-hours trading.
Toast is Marching Towards Profitability
Toast (NYSE: TOST), the provider of an all-in-one digital platform for restaurants, reported a strong quarter and meaningfully raised its full-year guidance. The company now expects to reach profitability on an adjusted basis by year-end. Thus, Toast reported Gross Payment Volume of $26.7 billion, up 50% YoY. The number of serviced restaurant locations increased by almost 40% YoY to 85,000. Revenue grew 53% YoY to $819 million, and the gross profit margin remained stable at approx. 21%. The company reported a Net loss of $81 million and an Adjusted EBITDA of negative $17 million for the quarter, which compares to the Net loss of $23 million and an Adjusted EBITDA of negative $45 million a year ago.
The company guided for $920 million to $950 million in revenue, and an Adjusted EBITDA of negative $10 million to $0 in the third quarter. For the full year 2023, the company expects the revenue to be in the range of $3.71 billion to $3.80 billion (up from the previous guidance of $3.57 billion to $3.66 billion), and the Adjusted EBITDA to be negative $10 million to positive $10 million, which implies profitability in the second half of the year. Toast, which went public in September 2021, had to cut 50% of its workforce at the onset of the pandemic, as the government enforced restaurant lockdowns. Nevertheless, the company came out of the pandemic stronger than ever, and besides entertaining profitability, recently started to expand internationally.
✔️ Toast Announces First Quarter 2023 Financial Results
✔️ Toast stock surges on beat-and-raise quarter
✔️ Toast expands to Canada, Ireland, and the UK
Affirm Leans Towards Interest-Bearing Loans, Keeps Losing Money
Affirm (NASDAQ: AFRM) reported its first quarter 2023 results yesterday (Fiscal third quarter 2023). The results were better than expected, but the losses were still frightening. Gross Merchandise Volume (the value of goods and services purchased using Affirm loans) was $4.6 billion, up 17.5% compared to the first quarter of 2022. The number of active consumers increased 25.7% YoY and reached 16 million, and the number of active merchants reached 246,000, up 18.8% from a year ago. Affirm reported an Operating loss of $310.0 million and a Net loss of $205.7 million, which compares to an Operating and net loss of $226.6 million and $54.7 million a year ago. Shares were down 7.97% in the after-hours trading.
Affirm, one of the leading Buy Now Pay Later companies in the world, continued to lean towards originating interest-bearing loans to accommodate the rising cost of funding. Thus, non-interest bearing loans (0% APR loans financed by merchants) contributed only 33% of the total Gross Merchandise Volume this quarter, compared to 43% a year ago. Moreover, last quarter Affirm started to reprice its agreements with merchants in order to pass the higher cost of funding. Thus, we can expect the share of merchant-funded 0% APR loans to decrease even further. It seems that the era of “free” BNPL loans, at least the 2020-2021 version of it, might be approaching its end.
✔️ Affirm Third Fiscal Quarter 2023 Shareholder Letter
✔️ Affirm Declines as Financial Turmoil Drives up Funding Costs
✔️ Affirm Beats Expectations. Shares Still Tumble
Upstart Reported a Terrible Quarter, Expectations Were Worse
Online lender Upstart (NASDAQ: UPST) reported a pretty bad quarter, yet the shares soared 39.53% in the after-hours trading. Investors didn’t seem to expect much from the company going into the earnings. Upstart originated almost $1.0 billion in personal and auto loans, down 78% from $4.54 billion a year ago. Total revenue declined 67% YoY to $103 million in revenue and the company reported a net loss of $129.3 million, compared to a net income of $32.7 million a year ago. Adjusted EBITDA was negative $31.1 million, compared to an Adjusted EBITDA of positive $62.6 million in the prior year. In the second quarter of 2023, the company expects $135 million in revenue, a net loss of $40 million, and an Adjusted EBITDA of $0.
The company’s fortunes turned for the worse last year, as investor demand for subprime loans evaporated and loan originations plummeted. Upstart wants to be a marketplace; and, thus, relies on wholesale investors and banks to fund its loan originations, charging them origination and servicing fees. At some point, the company even had to step in with its own balance sheet to fund loans. The price action in the after-hours suggests that investors see the worst to be behind this lender. Thus, the company executed a series of layoffs and guided for improved profitability, reported securing $2 billion in long-term funding commitments, and continues working on new products, including home equity and small-dollar loans.
✔️ Upstart stock soars 40% after earnings outlook positively surprises
✔️ AI lending fintech Upstart to lay off 20% of workforce
✔️ Upstart lays off 7% staff amid weakening demand for loans
✔️ Upstart Announces First Quarter 2023 Results
The last twelve months were difficult for Fintech lenders: multiple compression, the rising cost of funding, deteriorating economy, you name it. SoFi (NASDAQ: SOFI) shares are up 3.05% over the period, but look at Upstart and LendingClub! Brutal.
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