Unfortunately, Michael Linford, the CFO of Affirm, came down with an illness and, like many people out there today. So in his place, we have Rob O'Hare, who certainly can fill that role. So today we're gonna have a 45-minute fireside chat. We have a list of prepared Q&A questions that have already been vetted, and also we all have questions that have been submitted by a group from investors and retail investors as well, that we will also ask. So we're gonna kick it off here and start with Rob. Rob, why don't you just give us a little bit of background for those that are not familiar with you, and your role at Affirm?
Great. Thanks, Kevin. Yeah, so Rob O'Hare, I'm a Senior Vice President at Affirm. I've been with the company just over three years now. I sit on our executive team and, with Michael, help lead several of our finance functions. My scope focuses on investor relations, our FP&A work to forecast the business. I work with our merchant pricing team, as well as corporate development and procurement. So it's, it's been an amazing three years at Affirm. Prior to Affirm, I was CFO of a few smaller companies and then started my career, doing investor relations and FP&A work at Pandora and Square.
Thank you for that introduction. So yeah, just to get us started, obviously, you know, you had the Investor Day a few weeks ago, and we've also gone through, you know, the Thanksgiving holiday and Cyber Monday. Is there any, you know, particular unique trends that you've seen this holiday season? I know there's been a lot of media reports going back and forth that may have divergent paths, whether it's year-over-year or others. But is there anything you're seeing out there that's unique in this holiday season?
You know, I don't, I don't really think there's anything to call out as being especially unique. I think what you tend to see from Affirm in terms of our volume, really maps to the merchants that we work with. And so, in terms of some of the categories that are the most prominent for us, I would say the September quarter is probably the best proxy for what we're continuing to see. So, you know, we work with some very large, partners in the general merchandise category, and that, that continues to be, our largest category this quarter. And then similarly, fashion and beauty was our, our second largest, category, in the September quarter, and that, and that's been a strong category for us as well this quarter.
Really nothing too earth-shattering to report there, but we're continuing to see really good traction working with the merchants that we've brought on board and also working to deepen relationships with consumers.
Great. Okay. And then, so have you seen any shifts, whether it's more demand for an interest-bearing product versus a Pay in 4 product? You could maybe talk about what's happening there, particularly in the near term.
Yeah, similar to what we saw in the September quarter, I mean, interest-bearing was far and away our largest category in the last reported quarter, and that trend has continued into December. But again, that's more a function of the merchants that we partner with than anything else. So, you know, some of our largest partnerships have at least some interest-bearing component, if not being almost entirely interest bearing. So, interest bearing will continue to be the largest product for us for a while.
Do those merchants tend to have higher seasonal sales, particularly as we go into the calendar fourth quarter, or that push more towards interest-bearing and then that sort of slows down?
Yeah, I mean, the majority of our general merchandise partners do have some seasonal bumps, you know, because they are sort of benefiting from the retail trend at large that has holiday as peak season. So there is some growth there, and interest-bearing, in particular, does benefit from the holiday seasonality, you know, that we would expect.
Yes, there's quite a bit of seasonality, right, right now, right? Particularly as we go through after Cyber Monday and then going into the holiday season, which creates quite a bit of skew in what your results may look like, right? So, Affirm is, you know, is quite seasonal, given the short duration of the receivables that you have. Maybe could you delve into the impact of some of that seasonality associated with holiday shopping, and then how that impacts some of your, your KPIs, particularly revenue or GMV and RLTC for GMV?
Yeah, great question. So for us, you know, if you think about a typical holiday season, obviously Black Friday, Cyber Monday, which typically happens at the end of November, and then the peak holiday season continues into the first couple of weeks of December. And so what that does to our income statement from a profitability perspective, you know, if you think about the fact that we're capturing a lot of GMV and capturing that GMV in the back half of the December quarter, we'll recognize, obviously, all of that GMV that comes in. But from a revenue and transaction cost perspective, there can be some nuances.
The first would be, for the majority of our loans, you know, they tend to be interest-bearing in nature, and we recognize the revenue that comes from the interest income over the life of that loan, you know, as the interest is collected. So, in a period where you have a lot of volume come in, we do need to wait a quarter or two or three, in some cases, to recognize all of the interest income against those loans. When you're looking at revenue as a proportion or percentage of GMV, we will typically see some compression in Q2 in terms of our revenue take rate, so revenue divided by GMV. We've tried to acknowledge that and reflect that in the outlook for the December quarter that we provided in our November earnings call.
But that's probably the most consistent and obvious compression that we see on the revenue side. When you're thinking about transaction costs in our business, we have adopted CECL for provisioning for an allowance against all of the GMV that we underwrite and bring onto the platform. And so you'll see us book an allowance against all of that GMV in the quarter that it's originated, and so that will increase the amount of costs we have against that GMV. And like I said, on the revenue side, it will take a quarter or two or three for the interest income to come in against those same loans.
So you sort of have this dynamic where revenue is a bit depressed from a timing perspective in quarter, and then you're taking all of the provision expense against those same loans in the same quarter. So that, does increase transaction costs, and the combination of those two results in compression down at RLTC, which is revenue less transaction costs, particularly when you're looking at it as a percentage of in-quarter GMV.
Yeah. So you're gonna have and then it reverts back going into the first calendar year.
Yeah, and then once you get into the March quarter, right, you're still recognizing interest income against those same loans, and you've already—we've already provisioned for the loans back in the December quarter. So, you should see a benefit in terms of increased—slightly increased profitability in the March quarter.
Yeah, I think there was a little bit of a, you know, surprise around those metrics last year around seasonality, but it was more just seasonality than anything else, and looking through that. Do you expect the same type of seasonality to develop as we saw last year, as shown within your guidance and going into the first calendar year?
Yeah, I mean, I think we've reflected what we expect to see in the outlook that we've given, and so we will see a pretty large. Just based on the outlook alone, we would expect to see a pretty large sequential increase in GMV from the September quarter going into the December quarter, and that's consistent, for the most part, with the trends that we saw in calendar 2022 as well.
Yep. So you see the sales impact from holidays and then the tax payments as well going into some of those as well. Okay.
Definitely.
Yeah, maybe shifting gears here. You know, you guys recently hosted an Investor Day where you laid out a target of $50 billion of GMV over the medium term. And some of the drivers you cited include scaling the Affirm Card, winning at checkout, and accelerating distribution, particularly in Western Europe. Could you speak to some of those drivers as you see the greatest opportunity to achieve that goal of $50 billion? Where do you see like the biggest opportunity within those three levers?
Yeah. You know, so we, we broke down sort of how we would expect each of those, large drivers to, show up in terms of growth rates, into the foreseeable future. And because we, we've built, you know, a very large presence within U.S. e-commerce, and we think that we're, we're barely scratching the surface in terms of the ultimate opportunity in the U.S. Winning at checkout, you know, continuing to compound the business with the footprint that we have today with existing merchants and obviously bringing new merchants and consumers, into the fold, we think that's gonna continue to be the largest contributor to our growth going forward as we continue to scale toward that $50 billion milestone.
And then, we're really obviously excited about the traction that we're continuing to see with Affirm Card, and, we've given guidance that, you know, that will contribute a couple points of growth, in fiscal 2024, our current fiscal year. And we would expect those trends to continue as well, and for us to deepen relationships with our consumer base and for that to contribute a couple of points of growth going forward, to the overall platform. And then you know, we did call out things like business-to-business lending, which we've, you know, kicked off this fiscal year with Amazon and with Best Buy, our two early launch partners there. We expect to do a lot more of that going forward.
We think that's a big addressable market that currently is underserved, and so we're excited about that. And then also excited about broadening the geographic footprint. We did call out the U.K., as our next international market. We've done some early work there in terms of getting our licenses in order and have a team on the ground in the U.K. So that will definitely be our next international launch, and we're excited for that to start to contribute to the overall platform size.
Great. That's... I'd like to delve into a few of those, but, you know, just to shift gears quick, here from—we got a question from, you know, Kevin M, and maybe you could sum up some of your, some of you, some of what you shared on your financial targets for Kevin M., a retail investor, who wants to know, you know, what is it—what is a short-term goal for you, and what is a long-term goal? And then... do you have any acquisitions that you're considering or maybe mulling over, you know, over the next year or two?
Yeah, great question. In terms of the short-term goals, I mean, I, I think maybe the best short-term goal to point to is our, our outlook for our current fiscal year. We have a, a June fiscal year, so we've given an outlook that extends through June of 2024. We're targeting to do at least $24.25 billion of GMV in the current fiscal year. So we're excited to continue to execute against that milestone. Again, we've given a, a minimum GMV for the year. We, we obviously are driving to do as much profitable GMV as we, as we can. We wanna make sure that we're working with both merchants and consumers in a really constructive and healthy way.
So I would say that's maybe our near-term goal, and then longer term, I, you know, I would hesitate to point to a specific number. I think we've put the $50 billion out there as a milestone, but really, we're focused on driving as much ubiquity as we can at checkout, both in the U.S., but also in markets like Canada and the U.K., and we would expect that we don't stop our international expansion plans. Once we're live in the U.K., we really wanna be, you know, a global platform and, and partner with consumers across the world. So really, it's about continuing to just drive what we call share of cart, our percentage of the checkouts that the merchant is driving, and we wanna do that online via e-commerce, like, like the majority of our volume is today.
But I think longer term, with Affirm Card in particular, we can start to sort of earn our share of checkout, in brick-and-mortar as well, and that's, you know, brick and mortar in the U.S. is a larger opportunity than e-commerce is. So I think we've got a really long runway, with which we can drive growth, and, it's gonna be—that growth is gonna come across a couple of different fronts.
Now, I believe in the Investor Day, you reiterated some of your, you know, target operating margins, on, you know, revenue per GMV and operating margin as well. Could you remind the audience what are some of those metrics that longer term you're continuing to target and why?
Sure. Zane, are you able to share that slide just so we can sort of show everyone and speak to it directly?
Yeah, let me bring that up. Yep. Give me one second.
Yeah, I mean, really the way that we've approached our profitability targets, Kevin, is really we wanna base them to be a function of the revenue growth that we're seeing in the business. And so more than anything, we wanna make sure that we're making the right amount of investments into the business to ensure that we can continue to compound revenue in really healthy ways, just given we still think it's very early in terms of the overall market opportunity that we're pursuing. So you can see here, you know, obviously, we had a pretty strong quarter in September around adjusted operating profit. That's the bottom line profitability metric that we tend to operate towards in the business.
And so, we had really nice levels of profitability there, and we wanna make sure that we continue to drive some profitability while the business is growing north of 20%. And so you can see the target is roughly 5%-15% overall adjusted operating margins when the business is in that quantum of revenue growth. And then, longer term, if and when the business does slow down from a revenue growth perspective, we would look to scale profitability further. I don't think there's anything sort of unnatural that needs to happen in the business for us to achieve these levels of margin.
I think it's really going to be, you know, operating leverage, as we continue to scale, should allow us to grow and expand our profitability, and particularly sort of as the business reaches a saturation point in that last column on the far right, when growth rates start to sort of dip down below 20%. So this is really the framework that we use internally to make investment decisions, and it's a framework that we established with investors back in the fall of 2021.
And we've continued to sort of operate against that, and I think we've been really happy with the fact that if you look at the LTM column, you know, we've grown the business at really incredible rates over the last several years of being a public company, and I think we've continued to drive nice operating leverage to the bottom line. And on a trailing-twelve-month basis, we're just north of break even at the bottom line, and obviously had, I think, roughly a 12% operating margin in the most recent quarter.
So I think we've definitely turned the corner on profitability, and at the same time, we wanna make sure that we leave space in the P&L from an expense perspective to invest in things like the U.K., and some other new markets and opportunities that are currently under development.
Okay. Thank you for all that detail. Just to follow up on some of the $50 billion target that's out there and the 3 drivers you have out there, obviously, Affirm Card is a big deal, and a big portion of that has actually started to gain momentum in the near term. You know, what are some of the key milestones we can look for within, you know, scaling the Affirm Card in particular?
... Sure. You know, the card is arguably one of the most exciting things that we have going on at Affirm today. I think in terms of, you know, success metrics for that part of the business or that product, I think they're still pretty basic. I think it's early enough that looking at sort of the key top-line metrics that we look at internally are gonna be the most important milestones for investors. So, the number of active cards that we have, the GMV that's coming from those cards, and then maybe a secondary set of KPIs would be around just the frequency that we're seeing from card users, and then, you know, where and how they're choosing to transact with the card.
So we've seen roughly a quarter of our card GMV come in brick-and-mortar. I think that's, you know, that's an important component of the card, is that it, it does really help us accelerate our brick-and-mortar GMV, which I think long term will be really important. And then, you know, again, like I said, the frequency and also just the mix of what we call Pay Now and lending GMV coming from the card. I think those would be sort of secondary metrics.
Okay. And then you, you also mentioned winning at checkout, or touched on it. Affirm is, has already integrated, what, roughly 60% of U.S. commerce at this point? You know, what specific changes can you, can you make to win at checkout, to really generate growth within your existing customers? You know, is there something else there that you, you could really drive winning at checkout?
Yeah, I mean, I think the best example to point to today is probably Shopify, where we've posted, I think, based on the September quarter, September was our third consecutive quarter of accelerating GMV growth on a year-over-year basis. And so, we're really , Shopify is obviously a very large partner of ours. It's a very deeply integrated partner of ours, and one of the things that we've done within the Shopify program is add new lending products to the program over time. So that program began as a Pay in 4-only offering, and then roughly a year into the relationship, we added interest-bearing and then have continued to add longer-term 0% loans as well.
So I think broadening the aperture a bit from a product perspective is definitely something we can do to continue to take more share of checkout from the merchant and frankly, hopefully grow and drive incremental growth for the merchant that we'll benefit from as well. And I think in the case of Shopify, when we added interest-bearing loans that can go over a longer time horizon, that might be the right product for the consumer for certain larger purchases, and so that's helped broaden our aperture within the Shopify platform as well. So we would look to do something similar with each of our large partners. We have a team internally that's tasked with partnering with the merchant, you know, post-selection by the merchant.
Once we go live on a merchant, that's just the beginning of the journey. We're always looking to experiment and optimize the financing programs that we bring to a merchant. That's typically a conversation with the merchant to make sure that we're finding the right setup with them that works for us and works for them. But yeah, I think broadening the product offering through things like Adaptive Checkout, which bring both pay-in-full and typically an interest-bearing or a longer-term 0% offering to the consumer at the point of checkout, we see nice incrementality with that program as we've scaled it across our merchant base.
So in addition to some of those product enhancements that you're doing and expanding that to the merchant, is there anything else out there that you see that you can add as a product, or are there things that you have that are being developed that, you know, that we're not really... that maybe others are doing, that you can enhance that product offering for some of your largest partners?
I mean, we're always looking at things like sort of how low can we go in terms of the minimum cart sizes, right? So we've been optimizing around that KPI. You know, if you think about how Affirm has grown historically, we started at sort of the higher end of the average order value spectrum, financing things like mattresses and Pelotons. And we've consistently moved down the spectrum during our tenure as a public company, and so we're looking to do more of that.
We think that, you know, being ubiquitous across e-commerce, being able to finance purchases large and small, especially with consumers that we may have already worked with, I think that's a really important way for us to expand frequency and to expand reach, and to expand our share of checkout at our existing merchant base. So those are some of the other things that we'll tend to optimize around, are making sure that we have the right aperture from an average order value perspective, so that we go as low as we need to from a cart minimum, and also as high as we can to support more larger and considered purchases.
... So the expansion of that product, and then you also mentioned the business loans as well, or small business loans that you're looking at.
Yeah, right. You know, B2B is another way to deepen the relationship. You know, in the case of Best Buy, that's our first integrated relationship with Best Buy, so we're actually starting with B2B, with obviously a very large partner. And then Amazon, it's been a great way to deepen the relationship and to start to build inroads into another team within Amazon. The B2B team has been a great partner for us as we've turned on this initial launch into B2B lending.
Okay, this dovetails into a retail question that we received. Jinjin asked, you know, "Is there any plan to add mortgages or vehicle loans? Or do you see anything... Oh, you know, or maybe other products out there.
It's a great question. We haven't—we've never financed the purchase of vehicles, but we actually have a pretty meaningful business in the service centers at several large dealership chains. And so we found that to be a really great opportunity for Affirm. So far to date, we've stayed away from what we call secured lending. So typically, both mortgages and car purchases are secured lending, meaning that the good that's being financed could be repossessed by the lender. That's not a core specialty of ours, repossessing goods, and so I think you'd see us stay away from secured lending at least in the immediate term.
We really are focused on making sure that we are as ubiquitous as we can be, and so I think, you know, you're more likely to see Affirm in the service center at a dealership than you are when you're actually buying the car.
Keep it to maybe even smaller transactions, not necessarily-
That's right. And I think that's consistent with, you know, hopefully the trends that investors have seen from us in terms of we've continued to lower our average order value. That's us driving down the AOV spectrum. And obviously, you know, cars and homes would bring average order values way up for us as a platform. So we're definitely moving in the other direction. Smaller basket sizes, more frequency with consumers. So yeah, that's really important to us, we think long term, to drive a large and healthy network of consumers.
The smaller, more velocity. All right. And then, you know, I just want to follow up, you know, on the other driver into new markets. When will we especially start to see meaningful growth? And I know you mentioned particularly the U.K., as a key as a first real foray there onto Western Europe. And then how does that, those types of markets compare to Australia, which you also tried to expand internationally? How is that different, and what should it look like?
We haven't, we haven't given an exact date for launch, so would encourage, investors to stay tuned for that. We'll, we'll have more to share, in the coming months and quarters. But we are actively working on the U.K. launch today, and, you know, we're excited for that to be our next market. I think, you know, comparing and contrasting the U.K. to Australia, what we like about the U.K. is that, there's already a pretty large, interest-bearing, financing opportunity in that market. And I think that lines up well with, how we've operated the business and how we've comprised the GMV, from both our U.S. and Canadian markets to date.
So I think it'll allow us to run a playbook from a product perspective that is the most similar to the U.S., and also the U.K. is obviously a very large market opportunity from both an e-commerce and a brick-and-mortar retail perspective. So we're excited about sort of expanding. I'm sure we'll learn a lot as we go live in the U.K. Every market is different and unique, but Australia does not have the same potential for interest-bearing loans that the U.K. does, so we think the U.K. is a great next step for us.
We got another investor question here that he follows up on some of the holiday season questions that we had. And there's been some media reports about, you know, buy now, pay later, you know, seeing a real acceleration, particularly in this holiday period. Was there anything that you saw, particularly from Affirm or maybe even other initiatives that may have happened, whether it's consumer awareness or marketing or maybe even relaxed underwriting, that may have unlocked buy now, pay later to see maybe an inflection in growth, particularly around this holiday period?
I mean, obviously, I can only speak to how we've operated the business. We've been pretty consistent this holiday season around our underwriting posture. I mean, we really don't use loosening as a way to drive short-term growth. We want to make sure that we're extending credit to consumers, that more than anything, is an amount and the terms of that credit are such that the consumer can pay us back. That's the way we've operated the business since day one. I mean, the most profitable thing that can happen for Affirm is that consumers pay us back and pay us back on time. We don't have any sort of compounding interest in our loans. We don't have any sort of late fees.
So we wanna make sure that we're extending credit in a responsible way to our consumers and that we're setting them up for success to spread payments out over time and not create debt that they can't service and repay on their side. So, really, I mean, it's for us, the way to drive growth is typically by optimizing merchant programs, and sometimes that means bringing new or different loan products into the merchant relationship. And, you know, we are sort of continuing to grow with our largest partners and we've benefited from the success that those large partners continue to have.
Maybe another follow-up, you know, given you addressed credit there. The credit loss curve seems to have normalized, you know, roughly near 2019 or slightly below 2019 levels. What is driving some of the better historical credit performance, and do you expect this to continue as we move through 2024?
Yeah, you know, we're, we're always laser-focused on credit outcomes at Affirm. It's a really just important part of how we operate the business and just our DNA internally. So, I think first and foremost, the biggest thing that we benefit from as a platform is just our approach to underwriting. We are underwriting every single transaction, typically at an item level, every time that a consumer chooses to check out with Affirm. And, and we're creating loans that, on balance, are, you know, roughly $300 each and pretty short term in nature.
And so the combination of, you know, smaller loans with a pretty short duration that are re-underwritten every single time at the point of sale, that gives us a really rich data set and allows us to course-correct or optimize the credit box as needed if we start to see signs of stress come through the repayment data that we're staring at every week.
So, that ability to be pretty nimble with our credit posture and to tighten credit when we see signs of consumer stress, I think that's served us really well over the last year or two as rates have started to increase and as the impact of those higher rates has put stress on consumers and as consumers have also navigated a pretty unique inflationary environment over the last two years as well.
Yeah, it certainly has been. It's been quite a volatile ride for some consumer lenders. You know, shifting gears back here, you know, growth in Affirm, particularly new customers, may require additional incentives. Could you talk about the potential rewards programs you may look to introduce to entice more customers? And are you doing any testing right now around certain rewards programs?
Yeah, great question. You know, I think Affirm benefits from the fact that we have a really large and diversified presence at e-commerce. And for most of our merchants, you know, Affirm shows up at actually the product display page, on most of the sites that we partner with. And so we've benefited a lot from that footprint and that real estate that we have with our merchants. And to date, you know, we haven't really had to incentivize consumers beyond that. We wanna make sure that we provide the best terms that we can to those consumers. That's gonna dictate whether they choose to work with us for the transaction or not. But we haven't really incentivized new consumers with rewards otherwise.
We are starting to do some unique things with the Affirm Card. I think that's a really interesting surface for us to start to experiment with different reward schemes. I don't think rewards needs to mean points on airlines or cashback per se. What we've seen to date and what we've experimented with is really frequency driving new and unique and sorta early versions of different loan offerings in the card. That's been one of our more interesting early forays into rewards. But I think over time we're gonna find the right incentives to drive the engagement that we wanna see, particularly within Affirm Card. I think that's... Getting users into the Affirm Card is where we're focused right now.
I think that's a logical progression for most of the consumers that we work with, and we think Affirm Card is really unique in that it offers sort of the everyday utility of a debit card, but also fair and honest financing products as consumers need them for larger, more considered purchases.
So maybe longer term, you may consider a more robust rewards program, just-
I think so. I mean, I think we're gonna find our way there. I mean, we're seeing really good uptake of the card over the last couple of quarters, and so rewards is definitely something that will be part of the product longer term. But we're gonna sort of find our way there and find the right combination, whether it's monetary incentives, whether it's you know, offers that are tied to where and how you're using card, or whether it's unlocking new financing products that might provide more flexibility to consumers. I think it'll be a subset of those. And we also have the ability to you know, optimize and offer some incentives around the interest rates that we're charging for financed purchases on the card.
I think that's another surface that you'll see us experiment with from a rewards perspective.
... Great. And then, we got another question here from Connor F., who asks: Has Affirm considered offering buy now, pay later solutions inside of retailers' physical locations? We've seen Walmart and others are looking at ways to engage people at the point of sale in order to avoid cart abandonment. You know, could you provide maybe a physical on-ramp kiosk or something similar at Walmart or other type retailers?
Yes, and actually, I mean, Affirm is live within Walmart from a brick-and-mortar perspective today. So, you know, Walmart is one of the largest, if not the largest, brick-and-mortar retailer in the country, and so it's great to have the relationship, the long-term relationship that we've had with Walmart. And so, yes, you can use Affirm to finance purchases at a Walmart physically. And then, we also think that Affirm Card is a really great way for consumers to engage with our lending products for checkouts in the physical world.
Affirm Card brings all of the functionality that you would get for an e-commerce transaction that's financed with Affirm, into a pretty simple form factor and puts the ability to finance larger purchases into the hands of the consumer in a pretty frictionless way.
Great. Thank you. And then I got some more questions. Just to follow up on going back to credit. You know, in particular, the reserve ratio ticked up in the first quarter, and it seems this might be seasonal. Is there anything in particular that would have driven the pickup in the reserve ratio besides seasonality with higher GMV, particularly going into the second quarter?
Another great question. You know, one of the things that happened in the September quarter was that we brought on a handful of new loan buying partners on the financing side within our capital program. And so when you bring on a new loan buyer, we start to allocate new loans as they come into the system. We allocate a larger proportion of those loans to our loan buyers because there's new loan buyers that are being, quote-unquote, "filled up," to their allocation limits. And so what that meant was a higher proportion of our new volume was moving off of our balance sheet, and what was left on the balance sheet were loans that were slightly more seasoned than the balance sheet composition we had posted in the June quarter.
And so because the loans were slightly longer dated or longer into their life cycle than they had been in the prior quarter, the loans that were going to be paid back had already paid back a bit more. So there's a bit of a what we call a denominator effect, meaning that the loans that were delinquent were just a higher proportion of that cohort because the cohort had started to pay back based on the volume that had run through the system that quarter.
So pretty unique, just the shift that's going on in that-
Just the shift. Yeah, I think the... It was really a function of something that we think is a really positive thing for the business, deepening the relationship and bringing on some large and really important loan-buying partners, and that just changed the composition of the balance sheet at quarter end.
Okay. And then just to follow up on that as well, and, you know, there's been a lot of controversy over the macro environment and constantly going into a recession, but never actually happens.
Yeah.
What is Affirm thinking, you know, utilizing as a macro forecaster? Or how are you thinking about the macroeconomic outlook? And how would that impact, you know, your guidance or how you think about, you know, 2024?
You know, I hope this answer isn't overly disappointing. I don't think you're gonna find us to be the best macro prognosticators, because we benefit from, you know, being present at the point of sale, having an opportunity to underwrite every single transaction into a loan product that turns over really quickly. We tend to focus on our own datasets first and foremost, and we think that we have pretty real-time indicators into consumer stress just based on the early repayment data that we see from our borrowers. And so we'll course-correct based on how repayments are doing. That may mean small optimizations, either loosening credit or tightening credit, and we can do that down to a merchant level.
So we really don't have to take too long of a view on sort of big macro indicators like unemployment. So we tend to assume a pretty constant macro environment from an unemployment perspective, and then we're trying to reflect our cost of borrowing based on the forward interest rate curves that are available to everyone. Those are probably the two biggest macro assumptions that we make in our outlook.
Okay, we're getting a little tight on time, so I'm gonna go through a few more questions that we got in here. Shadrick H. asks: Is Affirm going to pay dividends?
We don't have a near-term plan to pay dividends. We just turned the corner on profitability. We're really focused on scaling that profitability as the function of our revenue growth, as we talked about earlier in this call, and we wanna make sure that we don't underinvest in sort of the global opportunity that we see for buy now, pay later, and the ability and the opportunity that we have to partner with some of the largest merchants in the world from an international perspective. So we're really focused on continuing to take share and to scale the opportunity globally. And so I think it'll be a while, quite a while before we have any plans to pay dividends.
Maybe that relates back to your guidance with revenue-
I think so, yeah.
I mean, I think really we're focused on growing revenue and doing it in a profitable way, and driving operating leverage through that revenue growth. And, dividends are, I think, a long ways out for us.
Okay. And then, maybe so another follow-up on competition in particular, and we've seen quite a bit of consolidation over the last couple of years within buy now, pay later space. Could you speak to why you've been able to grow share despite, you know, an increasing amount of competition, and just particularly from the likes of Klarna or Afterpay? And what, what is Affirm doing to set itself apart?
I mean, I think the resources and the capabilities that we bring to bear from a product and engineering perspective, I think those are pretty differentiated in the market, and that's why some of the largest e-commerce platforms in the world have chosen to partner with Affirm. So we want to continue to support those platforms and merchants, frankly, big and small, to drive incrementality for those merchants. But I would point to some of the larger partnerships. I think those have been pretty unique and obviously have been large contributors to the success and the GMV growth that we've seen in the U.S. market in particular.
Maybe a follow-up on that. Amazon obviously has many financing partners, including several large banks. You know, why do you feel Affirm provides the right value proposition relative to some of these larger competitors, particularly with Amazon?
I think first and foremost, I think you've seen the growth of buy now, pay later, broadly defined across the U.S., but frankly, global markets, because it's consumers choosing to transact, and I think consumers seeking, in our case, fine and honest financial products. So I think it's really been consumer-led. I mean, once we're live on a merchant site, whether it's Amazon or any small business, we really have to earn our share of wallet with the consumer, and we do that by providing fair and honest financial products. And we're hopeful that we can help drive incrementality, particularly in the case of larger, more considered purchases, that and drive sales to a merchant that they might not otherwise get.
So we think that we're really, at the end of the day, we're selling incrementality into our merchant base, and that's what's allowed us to win. And obviously, we can find new and innovative ways to expand the footprint with merchants and bring as many financing products to bear as it makes sense for the goods and services that those merchants are selling. And then with consumers, you know, we want to be as transparent and clear with the consumers as we can be around our loan terms, and that's helped us gain a pretty loyal following on the consumer side.
And, I know we're running low on time here, but just going to wrap up here with a couple, you know, retail investor questions on the future of Affirm. Thomas K. asked, "What does the future outlook for Affirm look like?" And then we also have a follow-up with, you know: "Where do you see yourself in the next five-to-six years?
Yeah, I mean, I think, you know, some of the things that we spoke about at the investor forum, I would encourage everyone to spend some time with the investor forum materials that are on our investor relations site. But we're really focused on continuing to drive ubiquity both in the U.S. and Canada, but also increasingly into the U.K. and with more markets to come. We've put $50 billion of annual GMV out there as one of our next important milestones. I think it'll obviously take a few years for us to get to that milestone. So we're focused on getting to that scale point and doing it with the right level of profitability based on the revenue growth frameworks and the overall profitability frameworks that we've also outlined in that investor forum.
One more question that I think, I ask most management teams are: Can you talk about what keeps you up at night? And also, what gets you excited about the next few years?
I mean, I'll take the last one first. I think we're in just a really enviable position in terms of the long list of merchants that we work with, and so I'm really excited to see us continue to grow that list of merchants and also excited with the early traction that we've seen from our Affirm Card offering. I think that's going to be a really meaningful part of Affirm in the medium to long term, and it's great to see the acceleration in that product in particular. What keeps us up at night is that, you know, we're always laser-focused on doing the right things for consumers and setting the right credit posture from an underwriting perspective, and that requires constant vigilance.
And so, we don't rest on our laurels from an underwriting perspective. Like I said, we're always looking at the repayment data to make sure that we've got the right credit posture and that the credit posture that we had yesterday still makes sense for us today. So that requires constant vigilance, and so far, I think we've been able to navigate a pretty volatile macro environment really well. But we still have to show up every day and make sure that we're making the right credit decisions going forward.
Great. Well, I think we're out of time now, but, Rob, I'd like to appreciate my thanks for spending time with us today, and-
Thanks, Kevin. Really appreciate you moderating here, and we always look forward to this event to engage with shareholders in this forum.
Thanks for having me, and, you have a good one. Thanks, Rob.
Yeah. See everybody next quarter. Thanks.