Acknowledge you, a consumer The financial business founded by PayPal mafia member Max Levchin went public this afternoon.
The company's financial results show that Affirm, The company offers personalized, installment-based loans to consumers at the point of sale, offering a tantalizing combination of fast-growing revenues and lower losses.
Growth and a Path to Profitability were a successful duo in 2020 as a number of unicorns with similar metrics made strong prices and profitable early trading on their debuts. Affirm is working with DoorDash and Airbnb to get out before 2020 comes to an end.
Let's take a look at the financial results and what made those numbers possible.
Affirm financial data
Affirm saw impressive historical sales growth. In the 2019 fiscal year, Affirm had sales of $ 264.4 million. One year fast forward and Affirm managed fiscal 2020 revenue of $ 509.5 million, up 93% over the same period last year. Affirm's fiscal year begins July 1st. With this pattern, the consumer finance firm can fully capture the year-end US holiday season.
The San Francisco-based company’s losses have also decreased over time. In fiscal 2019, Affirm lost $ 120.5 million at full capacity (GAAP). That loss decreased slightly to $ 112.6 million in fiscal 2020.
More recently, Affirm has maintained the pattern of rising sales and falling losses in its first quarter, which ended September 30, 2020. Affirm's revenue for that three-month period was $ 174.0 million, an increase of 98% over the prior-year quarter. This rate of expansion is faster than the company in the last full fiscal year.
Accelerating sales growth by reducing losses is a catnip for investors. Affirm has likely seen a healthy tailwind in 2020 thanks to the COVID-19 pandemic that is boosting e-commerce, allowing the unicorn to make more purchases in the consumer spend space.
Compared to the company's last quarter with the same period last year, Affirm's net losses decreased from $ 30.8 million to just $ 15.3 million.
Affirm's quarterly financials – on page 107 of the S-1 if you'd like to join in – gives us a more detailed understanding of the fintech company's performance amid the global pandemic. After a tremendous fourth quarter in calendar year 2019, in which sales rose from USD 87.9 million in the previous quarter to USD 130.0 million, Affirm continued to grow in the first, second and third calendar quarters of 2020 As we saw earlier, Einhorn had sales of $ 138.2 million, $ 153.3 million and $ 174 million, respectively.
Perhaps best of all, the company posted profits of $ 34.8 million for the quarter ended June 30, 2020. This one-time gain and the small losses in the last period make Affirm appear as a company that does no harm to future net income, provided it can grow as efficiently as it has recently.
The COVID-19 angle
The pandemic has had more of an impact on Affirm than the raw sales figures can accurately describe. Fortunately, the S-1 filing has more clues about how the company has adapted and thrived this Black Swan year.
Certain sectors provided fertile ground for the company to provide credit service. Affirm announced that sales from retailers focused on home fitness equipment, office supplies and home textiles have increased during the pandemic. For example, its primary trading partner, Peloton, represented approximately 28% of its total sales for fiscal 2020 and 30% of its total sales for the three months ended September 30, 2020.
Peloton is a 2020 success story with its share price soaring as growth accelerated due to a surge in digital fitness.
While investors are likely to be content to cheer Affirm's rapid growth, they may take a look at the company's reliance on such a high percentage of its revenue from a single customer. especially one enjoying its own pandemic surge. When its top retailer partner loses momentum, Affirm will quickly feel the effects.
Regardless, the Affirm model is very popular with customers. We can see this in its gross volume of goods or the total amount of all transactions it processes.
GMV at launch has grown significantly year-over-year as you probably expected given its rapid sales growth. On page 22 of its S-1, Affirm states that GMV reached $ 2.62 billion in fiscal year 2019, which was $ 4.64 billion in 2020.
Similar to the company's revenue growth, GMV didn't grow 100% year over year. What made this growth possible? Reach new customers. As of September 30, 2020, Affirm has more than 3.88 million “active customers”, who the company defines as “a consumer who has made at least one transaction on our platform in the 12 months prior to the measurement date”. That number rose from 2.38 million in the quarter ended September 30, 2019.
The growth is good in and of itself, but Affirm customers also get more active over time, which offers a modest compounding effect. Active customers have executed an average of 2.2 transactions over the past few quarters, up from 2.0 in the third quarter of the 2019 calendar.
Affirm was also fueled by an ocean of private capital. For Affirm, access to cash isn't quite the same as a software-only company, as it's debt, which probably gives the company a slightly higher preference for cash than other similarly sized startups.
Fortunately for Affirm, it has received ample funding throughout its life as a private company. The fintech unicorn raised well over $ 1 billion in funds prior to going public. These include a Series G valued at $ 500 million in September 2020, a Series F valued at $ 300 million in April 2019, and a Series E valued at $ 200 million in December 2017. Affirm has in previous equity rounds more than $ 400 million and a $ 100 million line of debt raised in late 2016.
What to do with the submission Our first assumption is that Affirm comes out of the private markets as a healthier company than your average unicorn. Sure, it has a history of operating losses and has not yet proven its ability to generate sustainable profit, but its accelerated sales growth looks promising, as is its declining losses.
More tomorrow with fresh eyes.