What happened

Shares of Affirm Holdings (NASDAQ: AFRM) plunged 22% on Wednesday after the financial services company warned of a slowing pace of expansion in the year ahead.

So what

Active consumers on Affirm’s platform jumped 69% year over year to 14.7 million in its fiscal 2023 first quarter ended Sept. 30. Active merchants, meanwhile, surged 140% to 245,000. Affirm’s total transactions, in turn, increased 97% to 13.3 million.

The growing usage of Affirm’s buy now, pay later services can also be seen in the company’s gross merchandise volume, or GMV. This closely followed metric, which essentially represents the total dollar amount of transactions processed on its network, rose 62% to $4.4 billion.

However, Affirm’s revenue grew at a relatively slower rate of 34%, to $362 million, as consumers shifted toward interest-bearing products whose revenue is recognized over the course of the loan.

Affirm’s growth-related spending also continued to take a toll on its profitability. The company generated an operating loss of $287 million, compared to $166 million in the prior-year period.

Now what

Affirm guided for revenue of $400 million to $420 million in its fiscal 2023 second quarter. That was below Wall Street’s estimates, which had called for revenue of $434 million.

Management said worsening credit trends and less business from key partner Peloton (NASDAQ: PTON) were having a negative impact on Affirm’s results. Peloton, which experienced torrid growth during the early stages of the pandemic, is seeing demand for its at-home exercise bikes and treadmills fall as more people return to gyms and other traditional fitness locations. Due in part to the relatively high price of its equipment, many of Peloton’s customers had chosen to take advantage of Affirm’s installment payment services.

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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Affirm Holdings, Inc. and Peloton Interactive. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.