Several Canadian entities including Shopify Inc. scored massive stock market gains Wednesday as U.S. consumer retail finance provider Affirm Holdings Inc. soared in its initial public offering.
Stock of San Francisco-based Affirm more than doubled in its first day of trading on the Nasdaq Wednesday after raising US$1.2-billion in its IPO, at US$49 a share, before closing at US$97.24, up 98 per cent.
Nine-year-old Affirm, led by PayPal Holdings Inc. co-founder Max Levchin, is one of a number of rapidly growing global startups offering “buy-now-pay-later” financing for online purchases. Brands such as Affirm, Sezzle, QuadPay, Klarna and Afterpay have proliferated in recent years, offering instalment payment plans for less-expensive items – such as jeans and makeup – than traditional bricks-and-mortar retailers have in the past. Affirm, booked US$174-million in revenue in the quarter ended Sept. 30, nearly double the level in the same period a year earlier, while its net loss halved year-over-year, to US$15.3-million in the period.
Last year, commerce software provider Shopify signed a three-year-agreement with Affirm to offer its instalment financing plan exclusively to the Canadian company’s million-plus merchant customers. As part of the deal, Shopify received warrants to buy 20,297,595 Affirm shares for 1 U.S. cent each. Those shares, which will cost Shopify just more than US$200,000 to buy, are now worth more US$1.97-billion.
Also benefiting from Affirm’s explosive public offering are Goeasy Ltd., Industrial Alliance Insurance and Financial Services Inc., and the Canadian Business Growth Fund (CBGF). They invested a combined $60-million in venture capital to fund Canadian consumer retail finance startup PayBright Inc., which was purchased by Affirm last month.
The announced value of the Paybright purchase was $340-million, payable in cash and stock. But the eventual value of the deal could be several times more than that.
According to Affirm’s filing documents with the Securities and Exchange Commission, the U.S. company paid PayBright investors, including chief executive Wayne Pommen, $136-million in cash plus 3.62 million common shares. In addition, Paybright investors stand to receive another 2.58 million common shares, which are now being held in escrow, if the Canadian entity achieves unspecified revenue milestones.
That means, as of the pricing of the IPO, Paybright shareholders had already received stock worth US$177.5-million ($225-million) , with stock in escrow worth another $160-million, in addition to the $136-million in cash.
After the stock’s ascent Wednesday, however, the shares in hand were worth US$352-million ($447-million) , with the stock in escrow valued at US$251-million ($319-million). Assuming Paybright hits those revenue milestones, its value to its former shareholders as of Wednesday’s afternoon was worth $583-million in Canadian dollars – and as much as $900-million including the escrowed stock, or 165 per cent more than the price struck in early December.
Buy-now-pay-later financiers make money by charging fees to retailers, who pay to offer instalment plans because they can result in higher “conversion” of online browsers to buyers, as well as higher average spending by customers.
Prior to its sale to Affirm, PayBright has grown rapidly, more than doubling the amount of funded purchases, on average, over the past five years. In 2020, it has signed merchants including Dynamite/Garage, Samsonite, Nautilus, Sephora and Hudson’s Bay. PayBright is used by more than 600,000 customers of 7,000 retailers in Canada.
Paybright’s growth accelerated during the pandemic as consumers increasingly shopped online from their homes, chief executive Wayne Pommen told the Globe and Mail last year. It increased its employee ranks last year by about 50 per cent and had 180 people at the time of its sale.
PayBright operates in an increasingly crowded space. Financing offers have become ubiquitous online, funded by global operators that have increasingly turned their attention to Canada.
Australian giant Afterpay Ltd. launched in Canada in August, and U.S.-based Sezzle Inc. also operates in Canada. Last year, PayBright partnered with Sweden’s Klarna Bank AB to provide buy-now-pay-later services in Canada for Klarna’s global customers, such as Sephora. Afterpay, meanwhile, bought Spain’s Pagantis SAU to compete with Klarna in Europe.