Affirm (AFRM): The high-flying finance IPO du jour
Matt Weller, CFA, CMT January 15, 2021 2:33 AM
AFRM should offer plenty of short-term trading opportunities in both directions over the next few weeks
Extending the recent trend of technology (or at least tech-adjacent) “unicorns” going public, Affirm (AFRM) held its IPO yesterday, and traders were quick to gobble up shares of the consumer lending company.
For those who aren’t familiar, Affirm offers point-of-sale financing for consumer retailers. The company’s biggest partner is another high-flying pandemic winner, connected fitness equipment maker Peloton (PTN). Affirm earns roughly 30% of its revenue providing financing for consumers purchasing Peloton equipment, but lately the company has been expanding with other partners including Walmart (WMT), Nordstrom (JWN), RealReal (REAL), Eddie Bauer, Expedia Group (EXPE), Eventbrite (EB), Bonobos, and Purple, among others. Affirm seeks to stand out from competing financing alternatives like credit cards by never charging late fees and allowing consumers to spread their purchases over longer periods with relatively low interest rates.
In terms of its valuation, the company issued 24.6 Class A shares at $49 yesterday, valuing the lender at $15B+. Not surprisingly, investor demand for the firm’s 90%+ revenue growth was voracious, and the stock now trades above $100/share as we go to press, or roughly a $30B valuation. Competing consumer payment services like Square (SQ) and PayPal Holdings (PYPL) trade at roughly 10X revenues, but aren’t growing nearly as quickly as Affirm, which did over $500M in revenue over the last year. Put another way, if AFRM can continue to grow its revenue at a near-100% rate over the next 2-3 years, it could well grow into its lofty valuation.
In a 0% interest rate world where investors are obsessed with buying growth stocks at any price, AFRM should offer plenty of short-term trading opportunities in both directions over the next few weeks as bulls and bears battle to settle on an initial valuation for the exciting new company.
Source: TradingView, GAIN Capital
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