Affirm just did a successful IPO yesterday

In last 10 months, we saw 3 big IPO plans in finance across 3 nations - India, US and China. SBI cards and Affirm went through while Ant was held back

Someone asked me earlier to share my view on it, here it is

1/ Starting with Affirm — what we know:

Annual GTV ~$6bn
Market Cap ~$23bn on day closing
Gross Annual Revenue ~$600mn
60% revenue comes from merchant commissions, 40% is interest & fees
Annual Net Loss ~$120mn

2/ Affirm’s ambitious vision statement states that they want to evolve how payments work as a category and hence naturally see Visa/Mastercard as their competition

3/ There’s healthy revenue coming from merchants but there is a concentration issue with just Peloton contributing to 28% of this income. Estimated 50% of Peloton GMV comes through Affirm

4/ This could be a great POC that can become a mainstream product in multiple categories or this could be a one-off case which means scaling could be difficult. Time will tell

5/ Gross Margin seems to be improving though, which indicates that at ~3 times of today’s scale and with similar Unit Economics business could start turning healthy profit

6/ Gross NPA seems high at 9% so this could mean that typical segment today are still those customers who are currently not served by regular bank credit card products

1/ Moving on to Ant, here's what we know:

Annual Gross Revenue ~$20bn
36% payments, 40% credit, 16% investment, 8% insurance

Annual Net Profit ~$4bn
-2% payments, 80% credit, 10% investment, 12% insurance

Yes, that's negative 2% from payments

2/ What’s interesting about this:

Ant is essentially a credit business today with a lot of potential to diversify in the future

While payments is still loss making, yet, it’s the key to the entire business because of the high frequency of transactions and retention

3/ There are 4 primary sources of funds for transactions — e-wallet balance, linked debit & credit cards, buy now pay later credit products and personal loan credit products.

Along with the 4 usage methods: QR codes, In-app txns, Online checkout and offline POS

4/ For Ant

- Credit business is the fastest growing at 60% YoY

-The Gross NPA (90+) has also been consistently rising and it’s at 2.2% now

-The last 2 years have seen the fastest growth. So the cohorts of NPA will be the key to understanding the true loss rate

5/ With a gross margin of ~40% in credit business, it may be okay to take some extra loss for now

Although, this is the business due to which the IPO got into trouble in the first place, so it’s interesting to see how it evolves and the risk it has on revenue growth

6/ A big risk for Ant is WeChat -- who aren’t doing much in credit yet, even after being the larger player with payments MAU of 1.2bn compared to Ant’s 711mn

Ant’s opportunity lies on the P2M side where it's market leader with 80million merchants vs WeChat’s 50million merchants

1/ A little about SBI’s victory--
On March 20th, SBI successfully launched their IPO during the peak uncertainty of covid

2/
Annual GTV ~ $13bn
Market Cap ~$12bn
Annual Gross Revenue ~$1.2bn
65% credit income, 35% merchant commissions & membership charges

Annual Profit ~$120mn, and 4.3% gross NPA on an outstanding loan book of $3.2bn

3/ However, the revised provision policy on non-moratorium pool shows gross NPA is 7.9%. This seems like a good move to come out clean

4/ SBI Cards operates in the fastest growing credit card market in the world where the market is expected to grow to 120-140mn credit card customers from current 30-35mn over the next 7-8 years