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Affirm Public S-1 Filing
- granzymes 6y agoFY Ended June 30, in millions | 2019 | 2020 ------------|--------|-------- net revenue | $264 | $509 op ex | $391 | $617 net loss | $(120) | $(113) loss ex SBC | $(79) | $(83) volume | $2,620 | $4,637 customers | 2.05 | 3.62
- xoxoy 6y agodoubling revenue while keeping losses stable is pretty good, especially when we’re talking about consumer credit
- JumpCrisscross 6y agoDoes Affirm carry the credit risk on its books?
- xoxoy 6y agoHaven’t read the prospectus but I know they sell loans to investors and they are fairly highly rated from a credit perspective. I’m sure they have some debt on their books too though.
- wholien 6y agosome debt, but that is mostly for experimentation purposes. Most everything goes into different debt facilities or are securitized and sold
- xoxoy 6y agosounds about right.
- formercoder 6y agoNo one would buy the debt if they didn’t hold on to any.
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- toomuchtodo 6y agoAm I right in reading 30% of their rev is coming from Peloton? (Control-F “Peloton”) “Our top merchant partner, Peloton, represented approximately 28% of our total revenue for the fiscal year ended June 30, 2020 and 30% of our total revenue for the three months ended September 30, 2020. Our top ten merchants in the aggregate represented approximately 35% of our total revenue for the fiscal year ended June 30, 2020 and approximately 37% of our total revenue for the three months ended September 30, 2020.” “For example, 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. In addition, an anticipated material modification in the merchant agreement with a significant merchant partner could affect the results of our operations, financial condition, and future prospects.”
- herewhere 6y agoRecently, I went to Peloton dealership to order one bike. They offered 39 months 0% APR. I asked if they can give me some sort of cash discount. Because of lack of cash discount, and availability of 0% APR naturally I financed it. Perhaps, that's how Affirm is getting their business.
- toomuchtodo 6y agoQuite the premium Peloton owners are paying in aggregate to subsidize that zero interest rate through merchant fees to Affirm. Peloton gets to immediately recognize the revenue of the sale (versus them carrying the debt themselves), and Affirm gets to show quality vintage from price insensitive prime borrowers.
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- subsubzero 6y agoThe floodgates in 2020 have opened with IPOs of alot of these unicorns, Palantir, doordash, airbnb, affirm, jfrog, snowflake, asana. I wonder why the sudden timeframe to go public. My guess is they want to ride the wave of stimulus money that has been going on during the spring/summer and the 2nd round which has yet to happen.
- xoxoy 6y agoI mean look at the market - we’re at all time highs. It’s more the trillions the Fed pumped into the markets than stimulus.
- subsubzero 6y agoyeah its probably this, market caps on some of these money losers is stratospheric. I think alot of people forgot the lessons of 2000. Take Palantir, a company that is 11 years old and for the past 3 years has lost 600M a year. What monopoly will this company carve out for itself to achieve this lofty valuation? Or lets look at doordash [1] despite the pandemic and most of its workers not being employees(low paid gig workers) it is still losing money at an astounding rate: $533M last year and with a pandemic bump of only a 149M loss this year so far(it expects orders to slow alot after the pandemic). I feel like I am Michael Burry in the big short playing my drums pointing out the obviousness of the huge crash that is coming with alot of these companies. What is scary is alot of americans and foreigners for that matter have their retirement savings(401k) tied up into these mini-titanics. When the fed's tap gets turned off, expect a reckoning. [1] - https://beta.trimread.com/articles/51214 https://beta.trimread.com/articles/51214
- chasebank 6y agoI don't know why you're being downvoted. Your probably is probably right. Most people have amnesia.
- bertjk 6y agoWhat makes you think the fed's tap will ever get turned off? What preconditions do you think we have to see before it happens? In the past, every time I thought "the Fed will have to tighten soon" something happens which somehow, magically, always requires more easy money to solve. Example: Easy money caused a housing bubble that burst? Now we need easy money to fix unemployment and keep the markets from seizing up. It seems that politicians have now decided that the easy-money solution is always the easiest one, with the least traceable future negative ramifications.
- 112012123 6y agoInteresting. Overall, I agree with everyone else - Affirm looks like a healthy company. Major takeaways: 1.5% write-off rate for their jan 2020 vintage is very healthy - comparable to the long-term trend for unsecured superprime consumer debt. Given the (I suspect) lower average creditworthiness of Affirm customers, this is a great number. I'd be curious to see their long-term trend for same-age vintages, however. In consumer credit it's well known that all the stimulus support in 2020 has significantly depressed defaults. It would be interesting to see if this is a fluke, or if this is actually what their charge-off rate actually looks like in a normal environment/part of a bigger trend. I'm a little skeptical of their claim to use ML & build a data moat for significantly better underwriting decisions. Consumer credit laws in the US so severely restrict what you can use for credit scoring purposes that better underwriting through data is basically a lost cause, absent some specific customer segment that has special credit situations. Finally, as others have noted, 30% of revenue just from Peloton is an enormous number.
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- momokoko 6y ago> Consumer credit laws in the US so severely restrict what you can use for credit scoring purposes that better underwriting through data is basically a lost cause, absent some specific customer segment that has special credit situations. Can I inquire what your background is or where you found that information? Many companies supplement credit scores with additional data to make these types of decisions.
- Guest42 6y agoI’ve worked in credit risk modeling and it is rather strict the predictors that can be used and well documented. Data comes in from a variety of sources and it is favorable to be skilled in established models than to try something obscure that isn’t intuitive. The models have to work across different sets of time and the varying business processes that may have been in place. Fraud modeling is more flexible, but seemed to have fairly similar results although more trendy things like random forests and neural nets would show up.
- xwdv 6y agoI will buy at IPO. Fantastic company.
- llsf 6y agoInstead of relying on your credit card, you use the vendor (or someone else) credit, to pay over time. Looks like in some cases, they integrated in the vendor website, so when paying you can directly select Affirm. I did the test with Dyson, it redirected me to the Dyson website, and Dyson does already offers payment installments at 0% APR (12 months). Looks like Affirm does the math for you, if there is an APR, so you know the true cost. And it keeps all your debt nicely listed in the mobile app. So, you know what you owe every month. Hopefully Affirm helps you not overstretch... This could help people who do not fully grasp the true cost of those credits, and hopefully help them manage their debt.
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- throwaway69123 6y agoWhere does Affirm get their under writing for its credit?
- solumos 6y ago> As of September 30, 2020, we had over $4.2 billion in funding capacity from a diverse set of capital partners, and we have funded approximately $10.7 billion of purchases since July 1, 2016. "diverse set of capital partners"
- slow_donkey 6y agoWonder if I'm the only one surprised by their actual revenue model. I had always assumed they made money off loan interest from consumers which they do, but it turns out over half of their 2020 revenue came from merchant fees instead. I just went through the Peloton flow to see for myself and indeed there's a 0% APR option for 3 years so it's clearly being paid for by Peloton. It also explains to me why people might choose to use Affirm even if they could afford the upfront cost.
- warent 6y agoIf you have the Affirm app on your phone it isn't too surprising! They have a full e-commerce platform setup with numerous brands. I've used Affirm for years to help build my credit with 0 APR and I'm a very happy customer. Excited about their future.
- jakemal 6y agoI moved about 5 months ago and purchased a few thousand dollars worth of furniture. I could have paid cash but since it was 0% APR, I used Affirm and set the money aside in an investment account that has paid for ~20% of the total cost. Of course it could have gone the other way, but it was a risk I was willing to take. It's a really great deal as a consumer.
- cbhl 6y agoI feel like the retailer side makes sense, even if you do 0% APR. The alternative to Affirm's merchant fee is a credit card merchant fee (say, 2.9%). Affirm takes what would be a ~$600 or $2000 credit card transaction and turns it into a series of ACH payments. If (cost of ACH + cost of underwriting) < (cost of credit card merchant fee) then the merchant and affirm can split the difference.
- ec109685 6y agoDoesn’t this break down once interest rates ride higher then credit card rake?
- tehlike 6y agoaffirm is one of those things that was pretty interesting. Coming from a country where micro-installments at PoS was standard, i always thought it was really interesting the US didn't have it. Good for them, I'll be buying shortly after their IPO.
- ac29 6y agoMaybe not quite the same thing as in your country, but layaway used to be fairly common in the US: https://en.wikipedia.org/wiki/Layaway https://en.wikipedia.org/wiki/Layaway
- tehlike 6y agoThis one is also interesting. I might not be old enough to remember something like this, even old times circa 1990s installments would let you have the item immediately, but be paid over time. The PoS thing i am talking about was even before ecommerce was common was mostly decentralized through the seller. Overtime, banks started getting into this niche, and when you were paying with credit card, they offered you installments usually at 0% apr for few months. Eventually this moved to e-commerce with websites offering similar payments. I also sort of remember in the US some credit cards (probably chase?) offered installments after you pay for the item - you'd login into your account, and pick a purchase to pay over time.
- stevofolife 6y agoCan anyone recommend a good way to digest a public filing? Like understand in a nut shell way, instead of reading through the whole thing.
- vira28 6y agoIf merchants mostly pay the fee, how long before companies like Affirm becomes a commodity? (meaning won't the competition drive the fee down?)
- nt2h9uh238h 6y agoIt didn't happen to credit card companies in 60 years. They still charge merchants 2,9%. It's like a giant duopoly and fixed pricing. But in a real market, ofc you would be right. Maybe congress should look at VISA, Mastercard, AMEX instead.
- vira28 6y agoIf robinhood is a merchant, I would love to buy affirm through affirm.
- supernova87a 6y agoWow, kind of amazing that they're not losing tons of money through sales + marketing like every other IPO lately who lose 50% there. (they are losing money though). A little scary though, how much money they lose through bad credit write-offs, and what's the item about a huge loss for loan purchase commitments, both years? Aside from those, they could be a really attractive business.
- akrymski 6y ago> Our agreement with one of our originating bank partners, Cross River Bank, which has originated the substantial majority of loans facilitated through our platform to date, is non-exclusive, short-term in duration and subject to termination by Cross River Bank upon the occurrence of certain events, including our failure to comply with applicable regulatory requirements. If that agreement is terminated, and we are unable to replace the commitments of Cross River Bank, our business, results of operations, financial condition, and future prospects would be materially and adversely affected. Affirm is effectively a broker for loans issued by Cross River Bank
- akrymski 6y agoThere is something fishy about selling a product with 0% APR - it means as a consumer you're actually WORSE off if you DON'T get the loan (since you would earn interest on the cash in your account). Forcing people to borrow when they don't have to is a strange way to make money off fees?
- fairity 6y agoI'm sure it increases conversion rate for the seller, especially for expensive purchases.
- kirillzubovsky 6y agoTotally. For consumers who can afford cash, it simply inflates the cost of the bike. Consumers see 0% and think free, but in reality the cost of the loan has already been priced into the cost of the bike. There's no free lunch.