Overview
Affirm offers payment options that let people make online purchases in installments. Think about it as the third option to purchase other than Cash or Credit / Debit cards. Affirm lets users take out microloans at the point of sale with participating vendors and aims to provide a quick, transparent, and more inclusive lending alternative to credit cards. Affirm position themselves as a solution to say yes to the things you want while keeping you out of unhealthy debt. Affirm was founded by PayPal founder Max Levchin.
The JUICE
Affirm is building the next-generation platform for digital and mobile-first commerce, making it easier for consumers to spend responsibly and with confidence. In addition to that, Affirm provides another opportunity for merchants to convert sales and grow. So it’s a win-win solution from both ends; users and merchants.
So, how does Affirm generates revenue?
1) Compensation from merchants when customers opt for one of Affirm’sAffirm’s lending options.
2) Simple interest means consumers pay fixed amounts of interest that they agree to upfront, and the interest never compounds.
What’s the big deal?
Of course, if you have cash probably, it is best to use that. However, if you are smart with money and ready to take your calculator and do paperwork, using Affirm may provide you with better cash in hand opportunities. Affirm’sAffirm’s consumer-focused app unlocks the full suite of Affirm products for a delightful end-to-end consumer experience. Consumers can use the app to manage payments and open a high-yield saving. Furthermore, the app provides access to a personalized marketplace to make purchases from partner merchants.
As of September 30, 2020, more than 6.2 million consumers have completed approximately 17.3 million transactions with over 6,500 merchants on our platform. That’sThat’s pretty impressive to validate the acceptance of the business model by both consumers and merchants. To top that, 64% of loans during the fiscal year ended June 30, 2020, were taken out by repeat consumers.
Can the company grow?
I am positive that the company has the potential to grow in the next five years based on the factors below:
1) According to Worldpay’sWorldpay’s 2020 Global Payments report, “buy now pay later” is the fastest-growing e-commerce payment method globally. In North America, the market share is expected to triple to 3% of the e-commerce payments market by 2023.
2) Rapid growth of e-commerce. E-commerce sales as a percentage of total sales jumped from 11.8% to over 16.1% between the first and second calendar quarters of 2020. Every commerce element is moving online, and Affirm is in a strong position to take advantage and provide solutions to both consumers and merchants
3) The cost to acquire a customer and the cost to convert a sale are two of the biggest challenges facing merchants, and these costs are rising across almost every channel. Affirm provides creative solutions to generate more sales. The company’s biggest customer is Peloton Interactive Inc, which accounted for about 28% of Affirm’s revenue.
In my opinion, Affirm provides a perfect solution for consumers contemplating a higher value purchase. The pandemic has created a favorable environment for this company to help consumers make necessary purchases in installments. With the rise of unemployment, consumers are more value-conscious shoppers and always seeking ways to finance online purchases.
Technical Valuation
As of September 30, 2020, Affirm had over $4.2 billion in funding capacity from a diverse set of capital partners. Affirm saw $509.5 million in revenue during its last fiscal year, up from $264.4 million a year earlier. The company posted a net loss of $112.6 million, compared with a $120.5 million loss in the year-prior period. Affirm is classified as an emerging growth company.
Today, shares of Affirm opened at $90.90 after listing on the Nasdaq, and the company priced its initial public offering at $49 a share. Crazy, that’s almost a 100% jump as I was expecting it to be around the $60-$65 range. We will have to monitor the next couple of trading days to find a better entry position as I am bullish on this one.
As usual, I am not a financial advisor, and this is not advisable for you to start dwelling on stock trading. The thought process above is solely to validate my understanding before purchasing any equity. I am still learning the process of evaluating and identifying opportunities in the stock market. By doing this, I am creating a structure for my brain to follow and not be an impulsive buyer or act emotionally when the market is against me. It is a journey I thought of worth sharing with any interested audience.