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I& #39;ll open my first Thread. It will be on Affirm $AFRM a company that has done its IPO this year and that is currently trading at a 64% discount from All Time High just 3 months ago #BNPL #BuyNowPayLater
What is Affirm? Affirm is basically a new payment button that you find at the checkout page of some merchants that allows users the convenience of paying their purchases in installments often with no interest (0% APR)
What is their competitive advantage? First mover advantage & Technology. During years they have developed their proprietary models based on Machine Learning that allows them to offer better outcomes vs traditional credit scoring models (more acceptance at a given risk level)
Why is this so Key? because better data --> better intelligence --> higher lending acceptance --> better conversion rates for merchants that sell more. Also it optimizes and decrease expenses (less provisions and loss loans)
How do they make $$? There are several segments. The largest today is merchant income (basically the take rate that they get from merchants per sale) When consumers are offered 0% APR obviously they buy more, thus merchants are willing to pay a higher take rate for this product.
Because they make more money from merchants with their 0% APR product their objective is to increase the weight of this segment and that is why their Machine Learning model is so key for profitability. Better ML can lead to higher 0% APR mix
Other sources of income are:
1. Interest (when they are unable to offer 0% APR)
2. Virtual card (they offer a virtual card that consumers can use to pay at merchants where Affirm is not yet accepted - Affirm get IRF income for each Tx
3. Other income related to their loan service
1. Interest (when they are unable to offer 0% APR)
2. Virtual card (they offer a virtual card that consumers can use to pay at merchants where Affirm is not yet accepted - Affirm get IRF income for each Tx
3. Other income related to their loan service
Let& #39;s take a look at some of the Threats and Opportunities.
Lets start with Tailwinds. What makes this an attractive opportunity?
1. Large (+600Bn) and very Underpenetrated (<1%) markets
2. Proprietary Risk Model (ML)
3. Fastest way of payment - 28% CAGR
4. Demographics
Lets start with Tailwinds. What makes this an attractive opportunity?
1. Large (+600Bn) and very Underpenetrated (<1%) markets
2. Proprietary Risk Model (ML)
3. Fastest way of payment - 28% CAGR
4. Demographics
Merchants face today + $1T in expenses between Customer Acquisition, Processing and Payment Fees. This number also gives an idea of how big the opportunity is
What are some of the Headwinds?
1. Customer Concentration - Peloton was est. 28% of Volume
2. Rising competition and potential pricing pressures. Many new players/banks could "easily" enter.
3. Dependency on 3rd parties for loans
4. Regulation
5. Macro (interest rates/inflation)
1. Customer Concentration - Peloton was est. 28% of Volume
2. Rising competition and potential pricing pressures. Many new players/banks could "easily" enter.
3. Dependency on 3rd parties for loans
4. Regulation
5. Macro (interest rates/inflation)
Valuation: Looking to peers we could get an estimated multiple of aprox. x30 Revenue.
Affirm did 509M Revenue in 2020 growing at 93% YoY. If we were to assume doubling their Revenue line by 2022 up to 1Bn. (which assumes cutting growth rate by half) and we were to take a x30 multiple , that implies a 30Bn. valuation which translates into $115 price.
Again, this is just an hypothetical scenario with several assumptions to get some valuation sensitivity.
For those wondering about the recent correction, given Peloton concentration in Affirm& #39;s volume, its recent recall announcement for Treadmills has obviously had an impact.
For those wondering about the recent correction, given Peloton concentration in Affirm& #39;s volume, its recent recall announcement for Treadmills has obviously had an impact.
I am not trying to make the case for any direction. This is not a recommendation. Everyone should do their own due diligence.
