In what could be 2021’s inaugural big listing debut, fintech Affirm (NASDAQ:AFRM) is set to begin trading this morning after pricing its initial public offering at $49 per share. The range was boosted earlier this week to $41-$44 a share from $33-$38. The company expects to raise gross proceeds of about $1.2 billion in the sale of 24.6 million shares of its Class A common stock.
Affirm offers a buy now, pay later (BNPL) solution for shoppers and retailers. The eight-year-old company is the latest tech firm created by Max Levchin, one of the c0-founders of PayPal (NASDAQ:PYPL), and it offers online installment loans through partnerships with merchants. The company raked in about $510 million in revenue for the fiscal year that ended in June. That’s a 93% increase from the year before, according to the IPO filing.
Market watchers had originally expected the Affirm IPO to have hit the Street last month. However, the online loan provider reportedly delayed its offering because of the extreme price spikes after Airbnb’s (NASDAQ:ABNB) and DoorDash’s (NYSE:DASH) IPOs. Airbnb skyrocketed more than 100% in its first trading day, and DoorDash closed almost 90% higher on its first day.
Affirm IPO Builds on Pandemic Demand
Demand for Affirm’s services — which offer consumers a chance to purchase a higher-value product through payment installments — quadrupled early on in the pandemic.
Importantly, consumer spending came to a halt as unemployment figures grew. That means for many retailers, demand plummeted. How do you bring that demand back? Well, according to Affirm and its BNPL peers, you make purchases more accessible. Instead of charging $100 for a one-time purchase of a product, offer consumers four interest-free payments of $25. This logic has perfectly played out.
It has partnerships with e-commerce company Shopify (NYSE:SHOP) and top retailers like Peloton (NASDAQ:PTON) and Walmart (NYSE:WMT).
Exercise bike-maker Peloton represents about a third of Affirm’s revenue, something mentioned in the “Risk Factors” section of the IPO paperwork. With stay-at-home orders fueling consumer spending on home fitness equipment, the increase in PTON’s revenue share from 28% at the end of the June fiscal year to 30% in the September first quarter is otherwise understandable, but still concerning.
Investors Flock to Growth and Fintechs
Affirm is looking to take advantage of investor sentiment around growth companies. In recent years, investors have cared more about growth than profits, so many companies that lose money have high stock prices.
Importantly, fintech has been very hot leading up to 2020, and this trend should continue. We have seen similar interest in Klarna and Afterpay (OTCMKTS:AFTPY), meaning that Affirm could find success following today’s public markets debut. However, one thing for investors to watch is the pandemic impact. What happens when the world will return to normal? Will investors and consumers lose interest in payment installments?
For now, keep an eye on AFRM stock, both as a bellwether for fintech IPOs in 2021 and for its own potential as a retail transaction disruptor.
On the date of publication, Robert Lakin held a long position in AFRM.
InvestorPlace contributor Robert Lakin is a veteran financial writer and editor, following fintech, agtech and property tech startups.
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