Affirm--and Upstart?

I had taken a small stake in Affirm a couple of weeks ago and was feeling really smart until they accidentally released earnings early and projected that their revenue will FALL from $361M in the just-announced quarter to $325-335M in the next one. The shares plunged from above $80 to below $60 and I got out of there. Glancing at the press release, I see no explanation for the expected drop, but I wonder, since Upstart and Affirm are so linked, whether this bodes ill for Upstart.


In what ways are upstart and affirm linked?


I don’t think Upstart and Affirm are linked. Yes, they both deal with credit, and use AI to assess credit risk, but that’s as far as it goes. They serve different markets.

I was also caught by surprise by the early earnings release and stunned by the guidance (both for Q3 and Q4). Too late to cash out now so I will wait to hear what earnings call has in store.

Qtr  Rev    QoQ
3Q20 $138.1 6.3%
4Q20 $153.1 10.8%
1Q21 $174.2 13.8%
2Q21 $204.0 17.1%
3Q21 $230.7 13.1%
4Q21 $261.8 13.5%
1Q22 $269.9 3.1%
2Q22 $361M  77%
3Q22 $330M  -8.6%  (midpoint)
4Q22 $339M  2.7%   (midpoint)

Qtr  GMV    QoQ
3Q20 $1.3   -7.2%
4Q20 $1.6   24.3%
1Q21 $1.5   -6.1%
2Q21 $2.1   43.1%
3Q21 $2.3   9.5%
4Q21 $2.5   8.7%
1Q22 $2.7   8.0%
2Q22 $4.5   66.7%
3Q22 $3.7   -18.7% (midpoint)
4Q22 $3.82  4.4%   (midpoint)


Both lend to consumers. I believe they also target the same type of consumer–millenials with poor credit, or at least low FICO scores. I confess I don’t know much about Affirm, but I don’t think it’s controversial to say they are linked. If you Google the two names you will see several comparisons.

If someone wants to tell me why Affirm’s results are unlikely to foretell anything for Upstart, I’d be grateful, but I’m a bit more nervous today about my 3% stake in UPST, even though I love what the company is trying to accomplish (which by the way was never the case with Affirm).

regarding upstart…i am going to decide about it only after I see earnings. you should only hold the companies that are “impressing markets”. Upstart failed to impress last quarter and market won’t believe anything until it has something to show. Until great earnings it is “gamble” in my opinion.

You have great results from Datadog…Cloudflare seems to have given expected numbers. I am not very impressed. I want to know what they have to say about their new products and when will they show bottomline.

The one thing good thing in cloudflare report is that they are no negative cashflow. Something market climate is not very hospitable to these days. so that is a very good development.

If someone wants to tell me why Affirm’s results are unlikely to foretell anything for Upstart, I’d be grateful, but I’m a bit more nervous today about my 3% stake in UPST, even though I love what the company is trying to accomplish (which by the way was never the case with Affirm).

I also had the immediate reaction of ‘wait, how are they linked?’. I poked around and found nothing that hasn’t already been said–short version: they’re both involved in lending. But it’s a very loose connection. Upstart mostly provides lending data to inform its partners’ decisions on mid-term personal and auto loans, which seems to be only similar to Affirm’s BNPL business in that in the end, someone borrows money. How each company/stock performs seems to be a lot more tied to its own execution at what it actually does than to bigger sector issues.

Without thinking too hard about it the closest thing I’ve been able to come up with would be like seeing a small auto company stock like say, Subaru, report badly and then wondering how it will affect Tesla. Both are car companies but how they go about making both cars and money is different enough that I don’t consider them “linked” unless all companies involved in the automotive sector are suffering. Probably not a great comparison, but I own a pretty simple mind.

So, I don’t know if that helps, but I’ll offer two other thoughts because I’m with you: your stake in UPST looks small, and their growth runway is long, wide, and paved to a solid depth.

-n8 (long Upstart, no position in Affirm)


This is my speculation since Affirm’s earnings call hasn’t happened yet.

What happened to Affirm last year? They partnered with some of the largest retailers in the US - Amazon, Target, Walmart. I don’t know about you but our family had a gift list on Amazon and Target also got lots of our money for decorations over the holidays.

Given the scale and seasonality of those large retailers, are we really surprised that Affirm is guiding a drop in revenue from calendar 2021 Q4 to 2022 Q1? To me this is exactly the same as how Etsy’s Q1 revenue is always dwarfed by previous year’s Q4 revenue. The real worry, if any, would be their Q2 (full fiscal year) forecast. It’s hard to say why they guided that way.

But using Affirm results to project Upstart results feels like reading tea leaves. I can’t see a large group of people using Upstart personal loan to buy gifts for their family or fund their holiday spendings. Affirm deals with consumer spending at checkout, not Upstart.

If anything the price drop in SQ is more explainable because of their Afterpay acquisition since it could hint a slow down in BNPL in the US. Of course, Upstart ER could be horrible, I simply don’t see the connection between AFRM and UPST.

P.S. I never had any Affirm position but I have quite a lot of UPST and SQ.


the one clear link to see is if affirm is projecting consumer demand for loans to decline. if that is the case then it will definitely hurt upstart because it takes a percentage of loan originations.

in last er this was issue with upstart their loan sizes were shrinking I think. however, like I said earlier, we need to see ER and if it’s good we could buy it higher with “confidence”.

For what it’s worth, my take on the connection between Affirm and Upstart is just that they’re both viewed loosely as Fintech and retail investors don’t understand that they are unrelated businesses. They both do a type of lending, but they are nothing alike.

However, since I own them both, I have noted that they trade together. It is an extremely rare day when one is red and the other green. They are up or down together. That appears to be true across the Fintech space. Any news for any lending company outside of a traditional bank is seen as predictive for them all, despite the vast differences in business quality, management, product, or process.

I, too, was having a lovely green day (thank you, Datadog) when out of the blue, Affirm fell off a cliff in the middle of the afternoon, pulling Upstart over the edge with it. All it says is that there are still more people than just Mark Minervini who can’t answer the question, “What does Upstart do?”



Afrm’s guidance is a huge sandbag. I do not believe that they will have 335 million at the top end next quarter. This quarter was huge. They were up 77% YoY and up 34 percent sequential. Even on the call they were asking how they could guide so low and it seems they are trying to be conservative. They are onboarding Amazon and Walmart so I can understand why their operating margins are lower and they were FCF negative this quarter. But there isn’t anyway I believe their guidance.



the one clear link to see is if affirm is projecting consumer demand for loans to decline. if that is the case then it will definitely hurt upstart because it takes a percentage of loan originations.

Could you provide me with a link where Affirm is projecting consumer demand for loans to decline? This is what I found on their Last Conference Call.

Because the opportunity embedded in our mission is still so vast and open consumer growth is very important to Affirm. We’ve done very well. Indeed our active consumer growth accelerated growing by 150% to provide well north of 11 million people with a smarter way to pay. Growth for us is never just about getting the next million consumers. It’s also about the impact we can have on the financial well-being of the folks who rely on Affirm.



Here’s an interesting tidbit from the AFRM conference call that I think is not only relevant to AFRM but also, to UPST to the extent rising rates make their products more attractive.

Andrew Bauch

That’s helpful. Thank you. **My follow-up would be is there any kind of** 
**guidepost that you're going to give us from a macro perspective what** 
**you're embedding in the outlook for unemployment, inflation and rates.** 
And I appreciate the color on the interest rate moves to the impact of 
the model, but just kind of thinking about what a baseline number that 
you're embedding in your assumption would be?

Max Levchin

Yes. So, Sorry, I'll just now I get to last one was yours. But -- so -- 
and I'm sure we'll have macro views as well. But just the thing that I 
think people really misunderstand about our products maybe because it 
is more popular outside of high finance perhaps, **when the interest rates** 
**go up and the prices go really when prices go up our product is more** 
**useful.** If you try to make ends meet and you're trying to pay for a couch 
and your credit card is confusing you and the rates just went up and 
Affirm gives you clarity, and a way to pay for things in a clear schedule 
and then you're done and there are no late fees. And half the time plus 
or minus the **seller will sponsor any pain[sic] new interest.**

Just are the basic experiments. **If the card rate that you paid gone up** 
**5% for example how do you feel about the 0% rate that a seller at a homeware** 
**shop is offering you powered Affirm like it's 5% more compelling. And so as** 
**inflation happens, the product that we provide is actually more powerful** 
and more useful significantly better bearing sort of consumer demand side of it.

On the flipside of course, the government addresses inflation raises rates 
et cetera. I'll stop now and Michael, can tell you what we've done about 
it but what things get equal at that top line this is generally a tailwind 
not a headwind.

From the latest conference call notes, here:…

When rates rise, there is additional incentive to use BNPL. When rates rise and require additional fees from credit consumer volume is likely to rise to use BNPL as an alternate.

What isn’t clear to me is how those additional frictional costs will compress AFRM’s margins. (I believe this will be a less of a factor for UPST as well, since they do not carry any securitized loans on UPST’s books.

Indeed, in the same CC Q&A period, Max Discusses margin’s compressing. But, then he goes on to state how they control risk carefully and do not allow (Algo training) consumer who cannot afford a purchase to use their services.

He also states that in a rising rate environment, seller partners are paying additional margin to use BNPL to entice consumers to continue purchasing. We all know that the consumer ends up paying for all of it, I guess the business results will have to speak to that in the coming quarters.

They have included 180 bp of rate increases for 2022 and an additional 100bp increase in their outlook for 2023

More detail, here:

Max Levchin

So, I'll tell you a little bit of a color generating anecdotes. In 
the early days of the pandemic we actually went to our merchants and 
said look we believe the macroeconomic conditions are going to 
worsen before they get better. We don't really know there's a lot 
of uncertainty.

For those of you who are very focused on the bottom-line, **we are** 
**going to adjust credits which means that approvals will go down a** 
**little bit. We're dealing on the margin here so this is points up** 
**or down.** But for those focused on the topline and it all depends 
on the margin embedded in the merchant's product, right? And some 
people manufacture their own others resell something they buy and 
resell it.

Again -- but the margin content that they have is usable to increase 
our approval and allow us to be in the ability to repay sort of 
gray zone where the model say ability is not 100%.

And we generally speaking we're able to command a significantly -- 
significant price increases at the merchant base during the early 
days of the pandemic because the products that we provide to the 
consumer in the moments of uncertainty is just so powerful. And so
 -- yes, generally speaking, I mean there's lots of to add there. 
And macroeconomic issues can be described as all kinds of things.

But as the economy ebbs and flows if consumers need more access to 
credit **many, many, many of our partners are very happy to pay more** 
**for that consumers to complete transactions because the certainty and** 
**sense of control that we provide is what helps them move merchandise** 
**off the shelves.**

And so in essence, it's a little glib, but macroeconomic uncertainty 
is actually a driver of business like ours. If everybody was just 
swimming in government stimulus money maybe just buy everything for 
cash. And so the discontinuation of various stimuli is on net a positive 
driver for the business both on the consumer demand side and the 
merchants' willingness to pay for our services.


Michael Linford

Yes. Just the total avoidance of doubt, all of our outlook reflects the 
forward curve. And so there's roughly 180 basis points of rate increases. 
We take that into all of our models when we give guidance. It's consistent 
with the market expectation of rate movement. And so we talk about rising 
rates. **That's not a problem for us at all. That's already reflected in** 
**the guidance.**

Me here: It’s not a problem that they haven’t accounted for. It is a problem, the question is , does that reduced guidance become just met while growth slows?


**It’s a deja vu moment for me…**I added a little bit more to my AFRM position last Friday as these events/opportunities don’t show up too often! Almost every disruptor I know went through something like this :smiley: Reminds me of AMZN, NFLX, TSLA that everyone shunned and sold out at some point.

Nothing has changed in my outlook about Affirm since writing this:…

Unfortunately, it always take’s a while for the value of disruptors to be realized. Do you really think Visa, Mastercard, PayPal are not worried about Affirm’s partnership with Amazon, Shopify, Walmart, Target and others? I’m holding this for the next 3 earnings!

Affirm like Upstart is still a very small position for me as I prefer to invest primarily in SaaS business; but I think these two deserve some patience!


ronjonb (