Upstart and Affirm: Breaking My Own Rules

Keeping in mind all the benefits that a SaaS business has over others and legacy software models it became a no-brainer for me to invest ONLY in the best SaaS names. And that approach has been rewarding for so many of us on this board who are invested in those companies.

However, the recent carnage ( and to some degree a totally meaningless excessive selling ) in high growth companies made me BREAK my own rule and as I mentioned sometime back, I built a small position in Upstart (UPST).

Like Upstart, I could not ignore the risk/reward potential in another name, which is Affirm ( AFRM). It does seem like BNPL is going to stick around and Affirm seems to be doing everything right to dominate that space. I think their partnership with Amazon, Shopify, Walmart and others are going to open additional areas of interest primarily from the data insights they are leveraging. That can add a lot of value to the merchants/sellers and as well as to customers. Another point to consider is they are under the stewardship of one of the best known names in the tech world, Max Levchin. As one of the co-founders of PayPal he played a big role in developing the anti-fraud technology for PayPal. He seems to be really focussed and confident as you can glean from his tweet in response to Consumer Financial Protection Bureau’s Inquiry into “Buy Now, Pay Later” Credit.

Here is his response:

"For the avoidance of doubt –
very much welcomes regulatory attention to BNPL. Questions CFPB is asking, eg “What are your late fees? Reactivation fees? Other fees?” – are indeed the right ones. The answer is fortunately very easy for us: zero!"…

Last week they also announced the launch of the Affirm SuperApp and Chrome browser extension.

“…Affirm’s new SuperApp delivers the best of Affirm’s shopping, payments, and financial services in one easy-to-use destination. The new Google Chrome browser extension allows consumers to use Affirm’s flexible and transparent payment solutions at virtually any retailer’s website, even if Affirm isn’t listed as being available at checkout.”

With the earnings for both these disruptors in Consumer Lending and Consumer Finance which are just around the corner; I have two small positions of about 2.5% each in both UPST and AFRM. They are not big enough to cause any significant damage to my portfolio even if they fail. Will re-evaluate after seeing their earnings.

Affirm: Second Quarter 2022 Earning Feb 10, 2022
Upstart: Fourth Quarter 2021 Earnings Feb 15, 2022