BETA
This is a BETA experience. You may opt-out by clicking here
Edit Story

As Ukrainian-Born Max Levchin Donates To Refugees, He Keeps Affirm On Course Despite An 84% Drop In Its Stock

Following

Max Levchin grew up in Kyiv, Ukraine, while it was still part of the Soviet Union. In 1991, when he was 16 years old, he and his family fled to America to escape anti-Semitism. “The scariest thing we had to endure was at the border. The Soviet guard barked at us and said that we would never be allowed to come back … He said, ‘The door will be closed to you forever.’”

Today, as Russia continues its invasion of Levchin’s native country and millions of Ukrainians leave their homes behind, the CEO of buy-now, pay-later fintech company Affirm is somber and gravely concerned. “I can deeply relate to the idea of having to pack everything you own–whatever it is that matters to you–into six suitcases, and just fly off to what you think will be a better place,” he says. “It’s awful.” He sees the war’s destruction and fighting as frightening, and he adds, “The real catastrophe is literally millions of people now who are homeless and don't know exactly what tomorrow brings.” He and his wife Nellie Levchin, a venture capitalist at SciFi VC, have been donating to charities that are operating at the Polish border with Ukraine to help refugees.

Over the past few months, the Russian invasion and rising inflation have pounded the U.S. stock market downward, and now Levchin is trying to defend against Wall Street’s skepticism of Affirm’s business. As a sector, fintech stocks have sunk 50% from their peak in November. Affirm’s valuation hit an all-time high of $47 billion that month, but it has since dropped more than 80% to about $9 billion.

Investors’ worries about Affirm seem to center on its profitability. The 10-year-old business lost $160 million in the fourth quarter of last year, and Wall Street analysts surveyed by FactSet don’t expect Affirm will be profitable through 2025.

A year ago, the financial markets were rewarding growth and sending tech companies’ stocks to historical highs, but now they seem to care more about the bottom line. Levchin says he’s not changing Affirm’s strategy. “We are in hyper growth mode,” he says, pointing out that Affirm increased revenue 77% in the fourth quarter of 2021 compared with the year prior, and it nearly doubled its active customers over the past six months, recently hitting 11 million. “We are very aggressively taking market share from other forms of payment.” While some ecommerce partnerships like its integration with Shopify have accelerated Affirm’s expansion, they’ve also led to less profitable transactions, because customers aren’t charged interest for the short-term loans.

When asked how he balances growth and profitability, Levchin says, “I think it's actually a false choice … we can and will do both.” The company’s metric of “revenue less transaction costs” (a non-standard measure) increased 93% in the fourth quarter, Levchin says, and he argues that profitability is improving. “We are literally in the strongest position we have ever been … We have north of $3 billion in available cash equivalents. We have funding capacity to take us through years of actual loan volume.”

In the long term, Affirm’s strategy is to become a “super app” where customers spend a growing proportion of their financial lives. It currently offers a savings account, and later this year it will launch a debit card that lets you pay upfront, with an interest-free loan or an interest-bearing loan. To increase profitability, if Levchin can get more customers to start shopping from Affirm’s app or website (about one-third of its transactions originate that way today), the company can earn more referral revenue from retailers.

Experts think fintechs’ depressed valuations have turned them into acquisition targets. Last August, during the heights of fintech fever on Wall Street, Block (formerly known as Square) announced it would pay $29 billion, or about 30 times revenue, for Affirm competitor Afterpay. Affirm is currently valued at about 9 times its 2021 revenue. Companies like PayPal or Intuit could buy Affirm, some say. But those businesses have also suffered in the market downturn. For his part, Levchin says he tries to keep his eyes away from the stock price to avoid the daily distraction, and an Affirm spokesperson declined to address whether Affirm has become a target: “Our focus remains on delivering value to consumers, merchants, and shareholders.”

Follow me on Twitter or LinkedInCheck out my websiteSend me a secure tip