Affirm’s IPO Filing: A Comprehensive Financial Analysis
Introduction: Affirm Joins the IPO Wave
Affirm has officially filed to go public, joining other high-profile unicorns like DoorDash and Airbnb in a year-end IPO surge. The consumer installment lending platform is capitalizing on a market that currently favors growth over profitability.
This analysis goes beyond the initial headlines to examine Affirm’s core financial metrics, pandemic impacts, and potential risks investors should consider.
Key Financial Metrics: Understanding Affirm’s Economics
1. Credit Loss Performance
Affirm touts its data-driven approach as a competitive advantage, claiming improved loss rates over time. The company’s S-1 filing shows:
- Provision for credit losses decreased from 18.6% of revenue in Q3 2019 to 10.7% in Q3 2020
- This improvement reflects better credit quality and risk assessment capabilities
2. Contribution Margin Growth
While Affirm doesn’t provide traditional gross margin figures, its contribution margin tells an important story:
| Metric | FY 2019 | Q3 2020 |
|---|---|---|
| Contribution Margin | 2.5% | 5.4% |
| Contribution Profit | $25.2M | $79.1M |
This 116% improvement in contribution margin demonstrates Affirm’s increasing efficiency at converting GMV to profits.
Profitability Trends: The Path to Sustainability
Affirm’s improving economics have significantly reduced its net losses:
- Net losses as % of revenue dropped from 35% (Q3 2019) to 8.8% (Q3 2020)
- Revenue grew from \(87.9M to \)174M during the same period
This demonstrates meaningful operating leverage as the company scales.
Concentration Risk: The Peloton Factor
Affirm’s financials reveal significant customer concentration:
- Peloton accounted for 28% of FY2020 revenue and 30% in Q3 2020
- Top 10 merchants represented 35-37% of total revenue
This creates vulnerability similar to:
- Twilio’s Uber dependence (2017)
- Fastly’s TikTok reliance (2020)
COVID-19 Impact: A Double-Edged Sword
The pandemic has affected Affirm unevenly:
Positive Impacts:
- Surge in Peloton financing (home fitness)
- Increased e-commerce adoption
Negative Impacts:
- Decline in travel/hospitality partnerships
- Potential reversal if pandemic subsides
Key Takeaways for Investors
- Strong Fundamentals: Improving credit metrics and contribution margins
- Growth Trajectory: Demonstrated ability to scale revenue while reducing losses
- Notable Risks: Customer concentration and pandemic dependency
- Market Position: Well-positioned in growing BNPL sector, but faces increasing competition
Affirm’s IPO will test how investors value its growth potential against these risk factors in the current market environment.
