Snapshot

In an era where digital and mobile-first commerce is rapidly evolving, financial services that prioritize transparency and user-centricity are increasingly critical.

Affirm Holdings has emerged as a key player in this evolving market, offering innovative financial products including merchant solutions and consumer buy now, pay later services. The company specializes in modernizing payment and commerce through technology and engineering expertise, offering solutions that foster responsible spending and build trust.

Affirm’s clientele encompasses tens of millions of consumers and more than a quarter of a million merchants, covering a wide range of industries across the spectrum of retail trading. The company’s risk model and transparent lending approach cater to a broad demographic of consumers, from those with limited credit histories to more established buyers. Merchants benefit from enhanced sales conversion and customer loyalty solutions, with services tailored for businesses of all sizes and sectors.

Competing against traditional banks, credit card companies, and emerging fintech firms, Affirm differentiates itself through its innovative products with help boost merchant sales, making it less reliant on pricing battles.

Currently in a strong growth phase, driven by its deep network effects and technological leadership. The company’s strategy revolves around expanding its merchant and consumer base, innovating financial products, and entering new markets through various retail verticals. They are leveraging their data-driven approach and capital management expertise to scale operations and enhance their platform’s efficiency.

Background

Affirm was founded in 2012, when Max Levchin, Nathan Gettings, Jeffrey Kaditz, and Alex Rampell embarked on a mission to revolutionize consumer finance. Levchin, known for co-founding PayPal, became CEO in 2014, guiding the company into the burgeoning BNPL market.

Affirm soon began expanding its BNPL services, announcing availability on e-commerce platforms like Kibo Commerce, BigCommerce, AspDotNetStorefront, and Zen Cart. The compnay’s approach, using machine learning to assess creditworthiness, offered an innovative alternative to traditional credit systems, benefiting consumers and merchants with higher approval rates and user-friendly loan terms. By 2018, Affirm had established itself as a credible alternative to conventional credit card services.

A partnership with Walmart in 2019, making its services available both in-store and online marked a major expansion into large-scale retail, significantly extending its consumer and merchant reach. This coincided with the company’s IPO in the same year where it raised close to $1.2 billion.

Affirm’s growth strategy included the acquisition of Returnly, a financial technology service company, for $300 million. This was part of a series of expansions and partnerships with major players like Amazon, Apple, Target, and Stripe further widening its market presence. By the end of 2022, the company was holding a 30% market share in the U.S. BNPL app space.

Leadership

Co-founder Max Levchin continues to serve as Affirm’s chief operating officer. He has been pivotal in shaping the company’s innovative operating model utilizing advanced technology like machine learning for credit assessments and establishing major partnerships with retail giants.

He is also the co-founder and chairman of Glow, a data-driven fertility company. Both Affirm and Glow were created and launched from his San Francisco-based innovation lab, HVF (Hard, Valuable, Fun). Levchin served as PayPal’s CTO until its acquisition by eBay in 2002. Prior to HVF, he also founded and was CEO of Slide, a personal media-sharing service, which was acquired by Google in 2010. Levchin also helped create Yelp, where he served as chairman from its founding in 2005 until 2015.

His achievements have seen him repeatedly named as one of the world’s top technology innovators.

Customer

Affirm offers a suite of financial products designed for both consumers and merchants that are built on simplicity and transparency.

For consumers, Affirm at Checkout provides an option when purchasing from partner merchants to choose Affirm as a payment method. This feature facilitates payment over time, with terms varying from a few weeks to several months, depending on the consumer’s preference and the transaction’s nature. The technology not only ensures smooth transactions but also monitors merchant credibility and consumer repayment behavior.

In the lending space, Consumer-First Borrowing delivers a frictionless solution for on-the-spot loan applications and approvals. Customers are presented with either 0% APR or simple interest loans, where the interest amounts are fixed and do not compound, thus maintaining transparency in financial obligations. Notably, Affirm underwrites each transaction individually and does not charge late fees, aligning its success with that of its consumers. While the Affirm Card feature lets consumers access credit with a unique post-purchase option available to convert debit transactions into installment loans.

The Affirm Marketplace, accessible via the Affirm app and website, allows consumers to receive personalized offers from merchants. And for those looking to save, a high-yield savings account in partnership with Cross River Bank is available, which is also FDIC-insured and comes without minimum deposit requirements or fees.

On the merchant side, Affirm’s direct API enables easy integration into payment systems, facilitating incremental sales and enhancing customer conversion and loyalty. This solution caters to a wide range of transactions, making it versatile for different business sizes and types. Merchants have the flexibility to offer various pay-over-time options, providing a compelling alternative to traditional discount strategies. Affirm also works with manufacturers on brand-specific promotional financing offers, further assisting merchants in increasing sales and preserving margins.

The company’s Merchant Dashboard is a comprehensive tool that allows businesses to manage transactions, access vital data, and configure their Affirm accounts effectively. Additionally, analytical tools and dedicated client support help to optimize performance, conversion rates, and average order values. The Affirm app and marketplace extend these capabilities, enabling merchants to reach customers through featured placements and personalized advertisements. An added feature is the prequalification option for consumers, which can be integrated early in the shopping journey to potentially increase conversion rates.

At the end of FY23, Affirm facilitated more than $20 billion in Gross Merchandise Volume across its 36 million consumers, utilizing a unique risk model based on sophisticated machine learning algorithms and proprietary data to cater to diverse financial needs. The merchant network, consisting of approximately 254,000 active merchants, caters from small businesses to large enterprises, across virtually all retail sectors.

Thematic

Affirm differentiates itself in the market with its specialized BNPL offering, delivering distinct value to merchants beyond mere payment processing. Unlike competitors like Block and PayPal, who engage in intense competition primarily based on fee reduction, often ranging between 1-3% which just about covers operational costs, Affirm’s strategy is focused on using installment lending as a tool to facilitate merchant sales conversions rather than competing solely on price.

This approach is particularly aligned with the needs of premium brands, who prefer to avoid constant discounting and instead focus on adding value to the customer experience. Consequently, Affirm can capture a larger portion of each transaction it facilitates, achieving this at a higher margin. This effective strategy enables Affirm to generate a significantly higher profit per dollar of revenue and gross merchandise volume compared to traditional payment processors.

Affirm’s strategy for growth is structured around enhancing its utility to existing partners and pursuing new merchant relationships across various sectors and geographies. The company has added 21,000 merchants in the last 12 months with notable new partnerships spanning a range of industries from fashion to telecommunications to travel, including Shein, TikTok Shop, Temu, Metro by T-Mobile, Booking.com, and Cathay Pacific.

The company has identified the prevalence of smaller transactions in U.S. e-commerce, with about 80% of purchases under $150, and is adapting its offerings to tap into this market segment. Recognizing the significant portion of global e-commerce occurring outside the U.S., including $1.1 trillion in the EU and UK, and $450 billion in the APAC region, Affirm is actively targeting these markets for expansion. A venture into the UK market is imminent, where discussions with potential launch partners are in progress.

To increase its user base, Affirm is leveraging its channels to promote the Affirm Card, aiming for widespread adoption. The company is also capitalizing on its existing merchant relationships to provide unique deals that attract users while benefiting merchants. Perks and rewards are being introduced as checkout options and are tailored to accommodate a wider array of merchant categories and transaction sizes.

Plans are also underway to introduce the Affirm Money Account, offering transactional account capabilities alongside the Affirm Card, including competitive savings rates and direct deposit among other traditional banking services. New product features, such as ‘Pay in 6’ plans, are also being developed to encourage repeat usage and customer retention.

Affirm is now targeting sectors beyond e-commerce and travel, as it looks to in-store retail settings and other consumer spending areas for growth. The company’s strategic moves into segments such as subscriptions, utilities, dining, and professional services are aiming to diversify its service applications.

Through these strategies, Affirm has an overarching goal to enhance its market share and presence in the digital payment ecosystem. Furthermore, the scaling of services in these new areas, alongside evaluations for further market opportunities, is targeting major expansions of the company’s total addressable market.

Financials

Since going public, Affirm has delivered an impressive record of strong double-digit revenue growth, albeit more tempered at 18% year-over-year in FY23 when it hit $1.59 billion. Consumers are returning to pre-pandemic shopping patterns, and the company is seeing increased demand for previously laggard categories which boomed during the pandemic such as consumer electronics. Merchant network revenue increased 11% as GMV rose off the back of the company’s active merchant base and consumers. Card network revenue rose 19% also correlated with the growth of GMV processed. While interest income surged 30% year-over-year.

This momentum continued into the first quarter of 2024 with total revenue increasing 37% year-over-year to $496.5 million as pricing initiatives and a mix shift towards interest-bearing products paid off.

Whilst Affirm is loss-making recording a near $1 billion loss in FY23 with material stock-based compensation expenses driving this, the company’s underlying cash position is robust at $1.1 billion. The company also announced that for FY24 operating expenses have declined in part due to the restructuring program that it announced in February 2023.

Looking ahead, consensus estimates have Affirm continuing its strong revenue growth in FY24, advancing a further 27% year-over-year to $2.02 billion. Analysts also expect the company’s losses per share to improve by 38% from $3.19 to just $1.98 in FY24.

Risks/Competition

Affirm faces competition from traditional payment methods like credit and debit cards provided by major banks including J.P. Morgan Chase, Citibank, and Bank of America, among others. It is also up against technology solutions from payment companies like Visa and MasterCard, mobile wallets including PayPal and Apple, and other pay-over-time options from firms like Block and Klarna. Merchants are also introducing their own proprietary pay-over-time options, often available alongside Affirm’s offerings at checkout.

Despite the intense challenges from well-established and highly-resourced competitors, Affirm’s competitive edge lies in its transparent, no-hidden-fee policy and its advanced technology that offers personalized, flexible payment solutions to a wide consumer base. The company also distinguishes itself with its use of advanced technology and data analytics which allow for personalized, inclusive financing solutions beyond the reach of traditional banking.

Conclusion

Affirm stands out with its premium and flexible product offerings, tailored to meet the evolving needs of consumers, while helping to drive merchant success. This approach combined with its growing list of new services and potential to expand into new markets position it for continued expansion and market leadership amidst a competitive financial landscape.

Symbol Info

Weekly Chart

Fundamental Data