🤝 Is Affirm On Cloud Nine After Amazon Deal?

🚲PTON probed by regulators; Amazon-backed firm files for IPO

Aug 30, 2021

Hey Global Investor! Here's what you need to know before the US markets open.

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🤝 Affirm: From Amazon With Love?

Buy Now, Pay Later (BNPL) service provider Affirm (AFRM) has signed an agreement with Amazon to have its flexible payment service available on Amazon's platform. Given that Affirm’s largest merchant thus far is the beleaguered Peloton (PTON), this is a much-needed win for Affirm. (Tweet This)

A Costly Bike Ride

Affirm was the first traditional IPO of the year (as against SPACs, etc.). The stock doubled on debut and tripled in a few days. However, the euphoria was short-lived, and the share price has been on a downward spiral ever since.

Exercise equipment provider Peloton (PTON) contributes nearly a third of Affirm’s revenue. As such, whenever Peloton sneezes, Affirm is sure to catch a cold. And the former has been sneezing a whole lot lately.

Peloton has been facing the ire of the US Consumer Product Safety Commission over the number of accidents (including death) that have involved its high-end treadmill model Tread+. The company took a hit of $165M in recalling the product in the most recent quarter.

If the cause was Peloton, the effect on Affirm was very quick. In Q3, the latter took a $3.5M hit on its revenue owing to Peloton's product recall. The expectation for Q4 is for the company to report lower revenue. The class-action lawsuit facing Peloton doesn’t make Affirm’s life any easier.

Its shares have gyrated all the way to $146 before falling back to near the IPO level of $49 per share. Since then, the shares have risen about a third and have been languishing there for a bit. It needed a shot in the arm, and it came in the form of Amazon.

Survive Now Thrive Later

Affirm desperately needed some good news to put the wind back in its sails. While it’s not clear how many concessions it has given to winning Amazon over, the fact remains that Amazon is now added to Affirm’s list of marquee relationships which includes Walmart and Peloton.

Thus far, Amazon has never had a BNPL option on its platform. Over the next few months, this feature will be rolled out to the broader customer base and piloted first to ensure any kinks will be ironed out upfront.

Once fully set up, any Amazon purchases over $50 can be broken down into simple monthly installments. There are no late fees, hidden fees, and Affirm has maintained the customers will never pay more than what they’ve agreed to at the time of checkout.

Affirm hopes to become a credible alternative to credit cards for Amazon's customers at the point of sale. While some of the Amazon customer loans will bear interest, some will come with an Annual Percentage Rate of 0%.

BNPL is fast becoming a pretty crowded space. Square had recently announced it’s acquiring Afterpay for $29B. PayPal and MasterCard are offering similar products. Even Apple is expected to announce a BNPL feature in partnership with Goldman Sachs.

For Amazon, BNPL maybe just a small feature to make its customers' purchase process more convenient. For Affirm, on the other hand, it’s an important win. How important? Well, the ink may not even have dried on the agreement, but even a mere announcement that Affirm will be Amazon’s BNPL partner a few months down the lane was enough to breathe new life into the stock price.

Market Reaction
AFRM ended at $67.90, down 2.97%. Shares rose 35.6% in after-hours trading.

Company Snapshot 📈

AFRM $67.90 -2.08 (2.97%)

Analyst Ratings (11 Analysts) BUY 55% HOLD 36% SELL 9%

Newsworthy 📰

Woes: US regulators probe Peloton over treadmill injuries (PTON -8.55%)
Debut: Amazon-backed Rivian files for IPO, gears up for blockbuster year-end flotation (AMZN +1.01%)
Failure: Astra cuts short rocket launch, with next attempt expected in the coming days (ASTR -9.00%)

Later Today 🕒

Zoom Video Communications Earnings (ZM)
Catalent Inc. Earnings (CTLT)
Nordson Corporation Earnings (NDSN)
Cloudera Inc. Earnings (CLDR)

Fun Fact of The Day 🌞

Snapchat CEO has turned down offers of $3B from Facebook and $4B from Google

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