The Affirm IPO Could Be Big, But Watch Its One Red Flag

Fintech company Affirm is one of the latest unicorns to file for an initial public offering, but fintech enthusiasts should do their research before diving in. The company is sure to attract quite a showing among investors when it lists on the Nasdaq, but is the Affirm IPO a wise investment? It depends on how you look at investing. And there’s at least one big red flag to watch out for.

A hand lingers over a bright blue tech wheel that says "fintech."

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Affirm originally planned to go public in 2020, but in December, The Wall Street Journal reported that it was delaying the offering until at least January, citing sources familiar with the company’s plans. The end of the month has come and gone, and there’s been no public offering from Affirm, so the report was obviously correct, although there has been nothing official from the company.

When Affirm initially planned to hold its offering in December, it was on track for a valuation of up to $10 billion, the WSJ reported. 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.

Delays at the Securities and Exchange Commission resulting from a substantial increase in listing requests were also said to play a role in Affirm’s decision to delay. BlackRock CEO Larry Fink warned earlier in December that the IPO mania 2020 has brought is “unsustainable.” He also believes it could end in “many accidents.”

Fink questioned whether the market was “pricing in too large of a forward growth rate” for companies that have gone public recently.

Taking Advantage of the IPO Window

The question Affirm now has to ask is whether the IPO window that’s been open for quite some time will close before it has a chance to actually hold its initial public offering. The company is taking a risk by delaying its IPO. However, Affirm management probably wants to avoid those big pops in stock prices on the first day of trading.

Pymnts explains that companies don’t see any of the extra money that’s poured into their stocks on that first day of trading. All they get is whatever price the underwriters set for the IPO, and investors who own or snap up shares quickly are the ones that see the extra cash. Affirm is probably trying to avoid extreme volatility. Often, stocks that take off on their first day of trading come crashing back down to Earth, although that hasn’t been the case for most of the hot IPOs in 2020.

Details on Affirm’s IPO

Affirm filed its IPO documents with the Securities and Exchange Commission in November. It plans to list using the ticker symbol “AFRM.” The company was founded by PayPal (NASDAQ:PYPL) co-founder Max Levchin, and it offers online installment loans through partnerships with merchants. Affirm has been around for eight years, and it raked in about $510 million in revenue for the fiscal year the ended in June. That’s a 93% increase from the year before, according to the IPO filing.

For the three months that ended in September, the company’s revenue jumped 98% year over year. Meanwhile, its losses were cut close to in half, falling to $15.3 million. Affirm has been growing rapidly, which is why its stock may be a hot investment when it hits the Nasdaq. The company’s gross merchandise volume increased 77% year over year. Affirm has over 6.5 million customers, and repeat customers took out about 64% of the loans on the platform.

Like many other Silicon Valley companies, Affirm will offer two different stock classes. Class A will come with one vote, while Class B shares will have 15 votes. Levchin will hold voting control over the company.

One Big Red Flag

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.

However, there is one huge red flag when it comes to Affirm. Its IPO filing reveals that almost one-third of its revenue comes from a single customer, which is Peloton (NASDAQ:PTON). In the “risk factors” section of Affirm’s IPO filing, it states that Peloton contributed 28% of its revenue for the fiscal year that ended up June and 30% of its revenue for the September quarter.

The company stated that Peloton’s significance as a customer has increased due to consumers spending more on home fitness equipment. It also warned that there is no guarantee that this trend will continue or that it will continue to generate such high levels of revenue from Peloton. Affirm said the loss of Peloton as a merchant partner or any of its other primary merchant relationships “would materially and adversely affect our business, results of operations, financial condition and future prospects.”

Will Affirm’s IPO Be a Good Investment?

Fintech enthusiasts may want to dive into Affirm as soon as it’s listed, but there are some caveats to understand. The company is one of the most widely anticipated IPOs in the coming months, which means that its stock could take off as soon as it’s listed.

If current trends hold for Affirm, it could end up listing shares for more than what it initially plans to list them for. Trends would also suggest that the stock could skyrocket out of the gate. Not only does the company have growth and investor preference for growth over profits on its side, but it also is in the fintech sector, which is hot in and of itself. Some big-name investors have enjoyed sizable gains in fintech, although not everyone is so enthusiastic about it.

For example, Warren Buffett has mostly avoided the fintech sector because he advises investors to only buy into companies they understand. However, Todd Combs, one of Berkshire Hathaway’s portfolio managers, got the firm into one fintech IPO in Brazil in 2018, and it’s turned a nice profit in the process. StoneCo (NASDAQ:STNE) hasn’t taken off as much as U.S.-based fintech firms have, however.

What fintech enthusiasts will have to ask themselves is how high is too high for Affirm shares. If the stock climbs quickly, it may not be possible to get in at a reasonable price, and the fact that one customer accounts for so much of the company’s revenue is a big concern.

On the other hand, there is a chance that Affirm could become another high-flying stock with plenty of room to run in the near term. Investors just have to be careful that they don’t get caught without a chair if or when the music stops on Affirm stock.

On the date of publication, Michelle Jones did not have (either directly or indirectly) any positions in the securities mentioned in this article.  

Michelle Jones is editor-in-chief for and has been with the site since 2012. Previously, she was a television news producer for eight years. She produced the morning news programs for the NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spent a short time at the CBS affiliate in Huntsville. She has experience as a writer and public relations expert for a wide variety of businesses. Email her at

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