Affirm IPO: Targets $38 Per Share, Valuation Surpasses $9 Billion

Affirm, a financial technology company providing payment solutions for online shoppers, has just published an updated S-1/A document. This new filing builds upon a previous submission from late December, which primarily centered on refining the presentation of Affirm’s financial results. The earlier update involved adjusting the wording used to report performance, eliminating certain non-standard metrics, and aligning more closely with Generally Accepted Accounting Principles (GAAP).

This latest report outlines a potential initial public offering (IPO) price range, suggesting that Affirm could offer its shares to the public at a price of $33 to $38 each. Should the company revise its projections upwards, it’s likely this price range will become more defined.

Before analyzing our assessment of the company’s value in relation to its recent performance, let's determine Affirm’s potential valuation based on this newly indicated price range.

Valuation

Companies preparing for an Initial Public Offering (IPO) can have their valuation determined in two primary ways. One method focuses solely on the number of shares that will be in circulation following the offering. The other, known as the diluted valuation, considers not only those shares but also those that could potentially become shares through the exercise of options or conversion of convertible securities. For the sake of clarity, we will compute both valuation figures.

Calculating the straightforward valuation is relatively uncomplicated:

• The number of Affirm shares expected to be outstanding after the IPO, including those allocated to the underwriters’ option, is 246,436,771.
• The anticipated price range for Affirm shares during the IPO is $33 to $38 per share.
• Therefore, Affirm’s simple IPO valuation ranges from $8.1 billion to $9.4 billion.

Determining Affirm’s fully diluted valuation requires using a higher share count, resulting in a correspondingly higher valuation. Our calculations, while similar to those reported by Bloomberg, yield the following:

• Affirm’s fully diluted share count post-IPO, including the underwriters’ option, is 318,865,246¹.
• The Affirm IPO price interval remains at $33 to $38 per share.
• Consequently, Affirm’s fully diluted IPO valuation range is $10.5 billion to $12.1 billion.

PitchBook data indicates that Affirm was valued at $2.9 billion after completing its Series F funding round in April 2019. The company subsequently secured $500 million in a Series G round in September 2020. Shares in that final round were sold at $19.93 each, alongside some convertible notes, as detailed in the current filing; investors participating in that transaction are poised for significant returns within a short timeframe.

Investors who contributed capital in earlier funding rounds are expected to realize even greater gains.

Are these figures justifiable?

Affirm concluded the third quarter of 2020 with $174 million in revenue, $218.6 million in operating costs, and a net deficit of $15.3 million; the company had previously achieved a profitable quarter during Q2 of the same year.

Considering Affirm’s Q4 2019 experienced approximately 48% growth compared to Q3 of that year, in terms of revenue, it appears logical to anticipate a strong performance for Affirm in this Q4, particularly given the significant shift towards e-commerce throughout the year due to COVID-19. Therefore, we can estimate that Affirm generated $200 million in revenue during the final quarter of 2020, a figure which I believe may ultimately be an underestimate.

Even with this estimation for Affirm’s Q4 2020 revenue, the company would be on track for an $800 million annualized revenue run rate. This number allows us to determine certain revenue multiples based on the valuations previously discussed:

• Affirm revenue multiple range utilizing a simple share count: 10.1x to 11.8x.
• Affirm revenue multiple range utilizing a fully diluted share count: 13.1x to 15.1x.

These multiples resemble those applied to software companies, despite Affirm being a fintech company and currently operating at a loss. Consequently, I anticipate that Affirm will price its shares at the higher end of its current valuation range, or even exceed it. The company possesses a recognizable brand and demonstrates substantial growth, which has been sufficient in recent periods.

It is important to note that we are not suggesting these revenue multiples are necessarily appropriate. I have no definitive opinion on their validity beyond considering historical precedents, which would likely portray me as outdated rather than an informed analyst. Current market conditions do not adhere to traditional standards. Therefore, based on the prevailing market dynamics, nothing presented here is particularly surprising.

Further updates will be provided as a final pricing decision approaches.

¹This number excludes shares allocated in escrow related to the Affirm-PayBright transaction.