Connect with us

Business

After 98% of Pop IPO, 3 confirmed risks to the purchase of securities

Avatar

Published

on


The latest triumph for serial entrepreneur Max Levchins is the IPO of San Francisco-based installment lender, Affirm. Affirms stock opened Jan. 13 at $ 49 and saw a 98% pop to end the day with a market value of $ 23.6 billion, according to Forbes, valuing co-founder and CEO Levchins 11% Affirm to 2 , $ 7 billion.

Does Affirms value reflect the bulk of the rise in Affirm shares or is now a good time to buy? Despite Levchins’ incredible entrepreneurial record, I see three reasons for caution:

  • Intense competition in the area of ​​installment loans
  • Post-pandemic growth slowdown
  • Very high valuation

Affirms a wonderful IPO

Levchin, co-founder of PayPal, started Affirm in 2013 and has seen very rapid revenue growth. As CNBC reported, claims that revenue for the fiscal year ended June 30, 2020 jumped 93% to around $ 510 million and in the quarter ending September 30, revenue grew 98% while its net loss fell about half to $ 15.3 million.

Affirm takes a share of consumer purchases that it allows its merchant partners which include 6,500 retailers such as Peloton (30% of revenue), Wayfair
W
, Walmart and Warby Parker. Affirm also collects interest income on loans it purchases from banking partners and certain consumer loans. The rate it charges varies depending on the creditworthiness of consumers, but often starts at 0%, CNBC noted.

Affirm, which has more than 6.2 million users, offered 24.6 million shares for $ 49. It raised $ 1.2 billion in the process and left nearly $ 1.2 billion on the table after its shares rose 98%.

Max Levchins trip from Kiev to San Francisco

Levchin led a remarkable life. As I learned in a September 2012 interview, a few months after going public with Yelp, Levchin left Kiev in 1991 for the United States, staying with an uncle in the Chicago area. He was hoping to attend what he believed to be the biggest tech school in the country MTI [he told me that he was thinking of what he now knows is MIT but at the time he got the order of the letters wrong].

As a result, he did not apply to MIT but was persuaded to apply to “a top notch school nearby,” the University of Illinois at Urbana-Champaign, where he earned his computer science degree. From there he went to Palo Alto where he spent “four years with a mattress lying on the floor in the crappy apartment” of close college friend Scott Banister.

While he told me that he had started “a lot of businesses [that] failed, “Confinity created software for an online payment service that eventually became eBay
EBAY
primary payment mechanism. Elon Musk ran another online payments company, X.com. The two merged to form PayPal and sold it to eBay for $ 1.5 billion in 2002.

After that, Levchin launched the social apps company Slide that Google
GOOG
acquired in 2010 for $ 182 million, according to CNBC.

In the summer of 2004, two engineers, including former PayPal engineering vice president Jeremy Stoppelman, told Max that they wanted to build what is now Yelp. Max wrote them a check for $ 1 million “on the spot” on his 29th birthday.

Yelp’s stock hasn’t been a big investment. It went public in March 2012 at $ 24.58 and has since grown 28% to $ 31.40, a compound annual growth rate of 2.5%. During that same period, the S&P 500 has advanced much faster at an average annual rate of 12.8%.

Intense competition in installment loans

Affirm competes in the Buy Now, Pay Later (BNPL) industry, which is expected to grow rapidly. According to Crunchbase News, the pandemic has propelled demand from competitors such as Afterpay, Affirm, Klarna and PayPal. By 2025, the volume of transactions is expected to increase 10-15 times to between $ 650 and $ 1 trillion.

This size and growth has attracted a significant amount of venture capital supporting many competitors. Crunchbase reported that 25 players have raised $ 1.7 billion since 2016 with Affirm getting the lion’s share ($ 1.5 billion).

Competition in the BNPL industry is based in part on how quickly a consumer can get a loan. Kamran Ansari, a venture capital partner at Greycroft, told Crunchbase that Affirm and Bread has created a newer version of real-time e-commerce digital payout programs while offering interest rates below those of credit cards. Later, Ansari said, rivals Afterpay and Sezzle introduced perks such as payment in four installments.

Of course, Affirm faces competition from more traditional rivals. According to his prospectus, these include legacy payment methods, such as credit and debit cards offered by card-issuing banks such as Synchrony, JP Morgan Chase, Citibank, Bank of America, Capital One
MEMORY
and American Express
AXP
. Affirm also competes with technology solutions provided by payment companies such as Visa.
V
and MasterCard
MY
and mobile wallets such as PayPal.

One positive aspect of the BNPL industry is that players benefit from two sources of income. First, the merchant pays the BNPL service provider 2% to 3% of the price of the purchased item. Then the consumer pays interest on the loan. Affirm and its competitors are replacing paper letters sent to borrowers with a transparent, much faster and more efficient digital approach. In addition, the merchant does most of the marketing to consumers.

There are many risks in this business model. All of these competitors could start to compete by reducing the fees they charge to merchants. Traders may decide that it is more cost effective to offer their own installment loan services.

Finally, more consumers will default on their installment loans if they lose their jobs. In June 2020, Affirms’ allowance for credit losses increased 40% to $ 82.6 million from the previous year. There is no doubt that such busy consumers would place a higher priority on buying food and shelter than paying off their Peloton loans.

Post-pandemic growth slowdown

The BNPL industry has experienced tremendous growth. However, will this growth rate remain high? Two Affirm merchant partners: Peloton and Wayfair look set to post slower revenue growth for the fourth quarter of 2020.

Peloton, up 567% since its IPO in September 2019, to a record level of $ 169.35 has grown very quickly but expects a significant slowdown. During its quarter at the end of September, Peloton recorded revenue growth of 232% of $ 758 million. However, he forecasts growth of 114% to $ 1 billion for the December 2020 quarter, according to his Transcript of the November earnings conference call.

Peloton expects much slower expansion in FY ’21. Its CFO, Jill Woodworth, said she expected modest quarterly sequential revenue growth.

Wayfair, whose stock is down 9% from its 52-week high of $ 349, saw third-quarter revenue growth of 67%, but in early November it reported a slowdown in the growth of about 50% year over year, depending on its third quarter earnings call transcript.

Affirm overrated?

Compared to its rivals Afterpay and Klarna, Affirm seems overpriced.

It’s a little hard to say because these two are private companies. Ideally, I would like to compare companies on the basis of revenue growth and market valuation against revenue, profit and cash flow.

Based on the value of the business per user, Affirm looks very expensive. How? ‘Or’ What? Forbes reported that the five-year-old Afterpay is valued at $ 24 billion and has 13 million registered users, or $ 1,846 per user. 15-year-old Klarnas users are worth about half that amount at $ 972 ($ 10.7 billion valuation and 11 million US users).

Affirms ‘value per user was almost twice as high as Afterpays, a whopping $ 3,806, based on Affirms’ valuation of $ 23.6 billion at its close on Jan. 13 for $ 6.2 million. ‘users.

If Affirm can forecast even faster growth in its first quarterly report, I would expect its stock to rise. But its high valuation doesn’t leave much room for error.

What Are The Main Benefits Of Comparing Car Insurance Quotes Online

LOS ANGELES, CA / ACCESSWIRE / June 24, 2020, / Compare-autoinsurance.Org has launched a new blog post that presents the main benefits of comparing multiple car insurance quotes. For more info and free online quotes, please visit https://compare-autoinsurance.Org/the-advantages-of-comparing-prices-with-car-insurance-quotes-online/ The modern society has numerous technological advantages. One important advantage is the speed at which information is sent and received. With the help of the internet, the shopping habits of many persons have drastically changed. The car insurance industry hasn't remained untouched by these changes. On the internet, drivers can compare insurance prices and find out which sellers have the best offers. View photos The advantages of comparing online car insurance quotes are the following: Online quotes can be obtained from anywhere and at any time. Unlike physical insurance agencies, websites don't have a specific schedule and they are available at any time. Drivers that have busy working schedules, can compare quotes from anywhere and at any time, even at midnight. Multiple choices. Almost all insurance providers, no matter if they are well-known brands or just local insurers, have an online presence. Online quotes will allow policyholders the chance to discover multiple insurance companies and check their prices. Drivers are no longer required to get quotes from just a few known insurance companies. Also, local and regional insurers can provide lower insurance rates for the same services. Accurate insurance estimates. Online quotes can only be accurate if the customers provide accurate and real info about their car models and driving history. Lying about past driving incidents can make the price estimates to be lower, but when dealing with an insurance company lying to them is useless. Usually, insurance companies will do research about a potential customer before granting him coverage. Online quotes can be sorted easily. Although drivers are recommended to not choose a policy just based on its price, drivers can easily sort quotes by insurance price. Using brokerage websites will allow drivers to get quotes from multiple insurers, thus making the comparison faster and easier. For additional info, money-saving tips, and free car insurance quotes, visit https://compare-autoinsurance.Org/ Compare-autoinsurance.Org is an online provider of life, home, health, and auto insurance quotes. This website is unique because it does not simply stick to one kind of insurance provider, but brings the clients the best deals from many different online insurance carriers. In this way, clients have access to offers from multiple carriers all in one place: this website. On this site, customers have access to quotes for insurance plans from various agencies, such as local or nationwide agencies, brand names insurance companies, etc. "Online quotes can easily help drivers obtain better car insurance deals. All they have to do is to complete an online form with accurate and real info, then compare prices", said Russell Rabichev, Marketing Director of Internet Marketing Company. CONTACT: Company Name: Internet Marketing CompanyPerson for contact Name: Gurgu CPhone Number: (818) 359-3898Email: [email protected]: https://compare-autoinsurance.Org/ SOURCE: Compare-autoinsurance.Org View source version on accesswire.Com:https://www.Accesswire.Com/595055/What-Are-The-Main-Benefits-Of-Comparing-Car-Insurance-Quotes-Online View photos



picture credit

ExBUlletin

to request, modification Contact us at Here or [email protected]