Buy now, pay later. You’ve probably seen this phrase at one time or anotherthat is, if you’re part of the $6.5 trillion e-commerce industry. One of the fintech companies taking the personal loan industry by storm is Affirm, and they’re headed for their very own IPO. Here’s the rundown on the Affirm fundraising and innovation that led to this point. Plus, we’ll dig into the Affirm IPO date, so investors of every kind can know when to start trading.
TL;DR
- Affirm’s founder and CEO is Max Levchin, who is also a PayPal co-founder.
- Affirm has raised a total of $1.5 billion in funding. In 2020, the company was privately valued at $510 billion.
- Affirm will trade on the Nasdaq Exchange under the ticker symbol “AFRM.”
- Almost a third of Affirm’s revenue comes from one customer: Peloton.
- We’re waiting on an official Affirm IPO date, but it’s almost certain to come in 2021.
- Levchin hopes to raise at least $100 million in capital from the public offering.
You can learn more about IPOs here.
A bit on Affirm’s company history
Affirm’s mission statement is short and sweet. It states that the company aims to “deliver honest financial products that improve lives.” That’s the short story, so what about the long story?
Max Levchin founded Affirm in 2012 as a buy-now-pay-later (BNPL) startup. Other co-founders include Nathan Gettings, Jeffrey Kaditz, and Alex Rampell. The industry has been on the rise for years, and it shows no signs of stopping. In fact, BNPL is expected to grow another 9.1 percent through 2021.
Levchin is no stranger to founding companies. In fact, he co-founded PayPal in 2000 alongside investor mogul Peter Thiel.
Today, Affirm boasts thousands of companiesmore than 6,500, to be exact. Their revenue hit $174 million in Q3 of 2020 alone. That’s a staggering increase of 98% when compared to the same period the year before.
Affirm doesn’t charge late, service, or prepayment fees to consumers. If they don’t make money off of fees, how do they make money? There are two ways in particular:
- Affirm partners with large corporations through a service called Affirm for Merchants. They advertise that merchants earn more in revenue when they offer additional payment options at checkout (85% more revenue, to be price, plus 20% more repeat purchases). These merchants pay a fee for the service.
- Affirm charges a 0% APR for qualifying consumers (which means their credit score is good enough to bet on) and something called a simple interest loan for the rest.
The Affirm app lets buyers manage their payments, but the other features are what make the platform holistic. Affirm’s own high-yield savings account and personalized marketplace (from Affirm merchants) also help to boost the brand’s bottom line.
As for who is on Affirm, it’s mostly younger generationslike Millennials and older Gen Zers.
Net losses are typical for enterprise-level companies, but Affirm seems to be getting theirs in control (unlike Airbnb and Doordash, two contemporary IPOs that have proven just how much it takes to stay on top of an audience’s mind). Affirm reaped a net loss of $112.6 million in fiscal year 2020, down from $120.5 million in 2019.
While it may feel like those net losses are high, investors tend to look at younger companies like Affirm under a growth lens. Even if a business isn’t profiting now, that doesn’t necessarily mean it won’t in the future.
Affirm fundraising
In total, Affirm has raised upwards of $1.5 billion in funding. Investors include Thrive Capital, Spark Capital, Founders Fund, and Shopify.
The company’s latest fundraising round happened recently. Affirm led a fundraising round in Sept. 2020 that rakes in half a billion dollars in capital. Durable Capital Partners teamed up with Singapore-based GIC to spearhead this collection.
Already, the company is turning the tables on investing. In December 2020, they acquired a company called PayBright for $340 million in CAD. PayBright is one of Canada’s leading BNPL providers.
Path to the Affirm IPO
Companies that want to go public must report a registration statement (among other paperwork) to the Securities and Exchange Commission (SEC). Once they go public, all key financial information is public knowledge, but they have the choice of whether or not to publicize the registration statement until just before the IPO. If they keep it quiet, it’s known as a confidential filing.
Affirm officially filed their registration statement, AKA form S-1, with the SEC on November 18.
The Wall Street Journal was the first to break the news of the Affirm IPO plans in July. At the time, they valued the company anywhere from $510 billion. This is based off of numbers like the projected IPO fundraising goal. For Affirm, this target is currently listed at $100 million. However, that number is likely to change as the Affirm IPO date nears.
Related: Direct listings vs IPOs
Next steps for the Affirm IPO
Affirm has proposed a ticker symbol for their stock. They hope to go by “AFRM.” Unsurprisingly, the company will trade on the Nasdaq Exchange (the Nasdaq is a tech-oriented exchange, so Affirm’s status as a fintech company makes it a perfect contender).
Jasmine Ventures is perhaps the largest investor in Affirm. Once public, Jasmine will keep 11,003,701 shares each of Class A and Class B common stock. This means little until we know what percentage of the company these shares represent.
The Affirm IPO date is en route, but the company isn’t doing this all their own. When going through a traditional IPO, businesses enlist the help of underwriters (or investment banks) to help them get the job done.
These banks help back the share offering, court investors through the IPO roadshow, and get all the SEC paperwork in order (yes, there’s a lot of paperwork).
Affirm is partnering with the investment bank Morgan Stanley for the deal, as well as Goldman Sachs, and Allen & Co. These underwriters will help Affirm set a firm number of shares as well as a debut price per share.
When is the Affirm IPO date?
The Affirm IPO date is still a blank slate. Typically, companies move forward on the basis of how long it takes for the SEC to review all the paperwork. In some cases, this can take upwards of nine months. Other factors include market conditions. After all, we saw throughout the course of 2020 just how much an unexpected event can dramatically alter the consumer landscape.
If you’re itching to know the schedule as soon as it’s available, keep an eye out for next steps (like a set price range and number of shares, for instance).
What investors should know
Competition is stiff in the pay-over-time sub-sector of fintech companies. In fact, Levchin’s own PayPal is no stranger to the offering. PayPal offers a close equivalent called Pay in 4.
Another major competitor for Affirm is a well-known Australian company named Afterpay. Affirm is quite a bit smaller than Afterpay, but its merchants (Dyson, Gucci, and Expedia to name a few) are no small fish.
Should competition like this really matter in the grand scheme? Typically, maybe not. However, the reveal of the Affirm IPO registration statement shows just how relevant this topic is.
One of the most interesting parts of their S-1 is that a full third of their revenue comes from one big customer. Yes, you read that right.
Peloton is Affirm’s largest singular customer, accounting for 2830% of their revenue. You can find this tidbit under “Risk Factors” in the document. This isn’t exactly diversified, but it makes sense. Peloton home workout equipment has grown wildly more popular since the start of the pandemic, which you can see in the company’s 292% increase in stock price YTD.
“The significance of Peloton in our portfolio has increased as a result of consumer spending trends on home fitness equipment, and there can be no assurance that such trends will continue or that the levels of total revenue and merchant network revenue that we generate from Peloton will continue. The loss of Peloton as a merchant partner, or the loss of any other significant merchant relationships, would materially and adversely affect our business, results of operations, financial condition, and future prospects.” – Affirm, Page 26 of Form S-1
As for what this means for investors, it’s a smart idea to keep your eyes peeled on Peleton’s financial health if you care about Affirm.
While you’re at it, tune into the company’s quarterly earnings calls so you stay up-to-date on market shifts. Home in on changes in revenue, spending, executive leadership, and more. Then, you’ll know whether to invest further, stay put, or jump ship altogether. That choice is totally up to you, but educating yourself can’t hurt.
Related: How to read an earnings report
Bottom line
Founder and CEO Max Levchin is reportedly worth $300 million, and the Affirm IPO is likely to boost this number. After all, he will maintain ownership stake once a portion of the company is in the hands of the public (although the S-1 doesn’t clarify just how much this stake equals). All that aside, Affirm is helping bring BNPL to the mainstream in the U.S. This upcoming investment opportunity could be one worth taking, as long as you do what it is investors do best: your due diligence.