Affirm (NASDAQ:AFRM) laid off 19% of its workers after a big earnings miss. These AFRM layoffs have the company joining an ever-increasing list of battered tech and finance companies.
AFRM stock dropped 7% on Feb. 8, then fell 15% more overnight. They were expected to open on Feb. 9 at about $13.50 each, taking the market capitalization below $4 billion.
The Buy Now Pay Later (BNPL) company has now lost 90% of its value from its September 2021 high, when it traded at nearly $165 per share.
Hot Niche Turns Cold
Affirm lost $315 million, $1.10 per share, on revenue of about $400 million for the quarter ending in December.
CEO Max Levchin accepted the blame for what happened in a letter to employees. “We consciously hired ahead of the revenue required to support the size of the team,” he wrote. “Everything changed in mid-2022,” as the Federal Reserve hiked interest rates. “I acted too slowly as these macroeconomic changes unfolded.”
BNPL was a hot business in 2021. Companies like Affirm were able to undercut credit card interest rates. In BNPL, consumers pay for goods over a few months, often at no interest, rather than through a revolving account that can charge 20% interest or more.
BNPL remains alive. Apple (NASDAQ:AAPL) recently began testing a BNPL service. Paypal (NASDAQ:PYPL) is moving into the niche. BNPL is still growing fast internationally.
But rising interest rates have turned everything on its head. BNPL lenders are paying more for their money. Interest-free loans are no longer profitable. Everyone from Goldman Sachs (NYSE:GS) to Citicorp (NYSE:C) has jumped into the market. And regulators have started poking around.
The industry’s new hope is that BNPL loans to businesses might get growth going again. Banks can use BNPL to get business clients quickly. Conventional loan applications have a 40% rejection rate. They can then use credit and risk management software to assure payment.
AFRM Layoffs: What Happens Now?
BNPL is a casualty of the Fed. Companies like Affirm that got into BNPL because of free money must figure out another way to play.
Consumers should expect stiffer terms. AFRM investors should expect harder times.
On the date of publication, Dana Blankenhorn held a long position in AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.