What we think about Affirm Holdings (AFRM)
Breaking Update: I'm reaffirming our conviction in Affirm as an investment. It's impressive to see it growing at scale; gross merchandise volume increased 35% and it's now reporting an operating profit.
Last summer's partnership with Apple was a huge vote of confidence. There's still plenty more room to run for this innovator with a talented leader at the helm.
Affirm in Three Words: Modern Financing Platform
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Background
The world needs a more intelligent transactional database. Large credit card tollbooths like Visa and Mastercard do a good job of tracking what's being purchased and where.
But they're missing the "why."
Intent is the most crucial context of a purchasing behavior. And it takes much deeper digging to discover.
The world’s credit card tollbooths were at risk of losing share to a more efficient payment system, which could relentlessly collect data far beyond the transaction receipt in order to create more value for consumers, retailers, vendors, and lenders.
Led by PayPal’s former Chief Technology Officer Max Levchin, Affirm wants to be that company. Its two-sided network would simultaneously drive new sales to retailers and also make it easier for buyers to transparently borrow money for the purchases.
To demonstrate, let me present a real-world example.
I personally used Affirm to buy a vacuum that was listed on Amazon. It asked me four questions to determine I was creditworthy (using its proprietary algorithms; NOT a FICO credit check) and I qualified for a 0% interest rate through four easy payments.
It was fully transparent about everything I was getting into. The four debits from my bank I'd be making and the total amount of interest I'd be paying.
Clicked the button. Vacuum delivered. Payments collected. Piece of cake for me as a consumer.
But there's an important layer of context that goes deeper than that transaction. Perhaps there are now other things I might need, to complement my recent purchase. Affirm now knows I'm a homeowner who's interested in tidying up, so it can send me future in-app deals on cleaning products or other home appliances.
Visa and Mastercard can and do track aggregate purchasing behaviors of those who are using their cards. But Affirm is building a much more personal relationship with its users directly through its app. And that's of greater interest to the companies who want to sell products.
In addition to being listed as a payment option on Amazon, Affirm is also working with 320,000 other partner merchants and is growing its vendor list at 20% per year. Merchants overall report 60% higher average cart sizes when they begin using Affirm.
Conviction Update:
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Thoughts on Current Valuation and Capital Allocation
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