IPO

Words of Affirmation Are Wall Street’s Love Language

Affirm, a company that helps consumers finance online purchases, went public yesterday in the first meaty IPO of 2021. Investors’ reaction?

• More, please. Shares briefly topped $100 after being priced less than half that, before finishing the day up 98%.  

The backstory: A personal lender that offers pay-as-you-go options at a variety of merchants, Affirm benefited from the rise of e-comm during the pandemic. “Buy now, pay later” has become an attractive payment plan for budget-conscious consumers, especially since Affirm doesn't charge late fees. “We don't profit from our customers’ mistakes and misfortunes,” CEO Max Levchin told Fortune. 

So how does it profit? 

Affirm charges interest over the course of most customer payment plans, but a significant chunk of its revenue comes from the fees it charges merchants who use its service. This has been especially lucrative because of one particular merchant—Peloton. 

• Affirm’s partnership with the trendy fitness company accounts for a mind-boggling 28% of its total revenue.

It’s trying not to be a one-partnership pony. Affirm inked a second substantial agreement back in July 2020 with another e-commerce leader, Shopify. In exchange for allowing Affirm to become the exclusive point-of-sale financier of its checkout service, Shop Pay, Shopify was granted warrants to buy around 20 million shares in the company. 

• After yesterday’s boisterous debut, that stake is worth nearly $2 billion. 

The long road ahead

Despite a favorable business environment and Jimmy Fallon-level investor enthusiasm, Affirm lost $112 million in its last fiscal year and has yet to turn a profit. But Levchin knows a thing or three about navigating the public markets. 

• As a member of the “PayPal mafia” with investor Peter Thiel, Elon Musk, and others, he helped take the fintech giant public in 2002. 

Bottom line: Affirm’s entry into the “doubled in value on the first day of trading” club alongside other unprofitable companies like Snowflake and DoorDash could lead to more scrutiny of what some consider a broken IPO process.

HOSPITALITY

Airbnb Celebrates, Then Cracks Down

Yesterday, Airbnb stock shot up 5.7% to a record high, eclipsing a market value of $100 billion for the first time since it IPO’d just over a month ago. 

• Airbnb’s stock mirrors the rise in other travel names such as Tripadvisor, as investors bet on a vacation binge for the ages once we’ve all been vaccinated.

But it’s tightening the screws on the home front

Airbnb said yesterday it’s blocking new reservations and canceling existing ones in the DC metro area next week, when Joe Biden is set to be inaugurated as president.

Tensions are high in the city following last Wednesday's siege of the Capitol building by pro-Trump extremists. Local officials are asking people to stay home.

• Facebook has also been tracking a rise in plans for more violence spawned by the Capitol attack, a spokesperson told Reuters. The dates center on the Jan. 20 inauguration.  

Interesting angle: Barack Obama’s inauguration in January 2009 was a pivotal moment for Airbnb’s cofounders, who became convinced of their business model that week when they witnessed the flood of people looking for short-term accommodations.

TURNAROUND

Back From the Brink

WeWork and GameStop, two companies that have toed the line between “mostly dead” and “all dead” over the past year, are mounting surprising comebacks in 2021. 

WeWork: Despite the overall downturn in demand for office space, WeWork may have actually gained momentum during the pandemic. According to CEO Sandeep Mathrani, the company is on track to be profitable by the end of the year. Why? “Flexible” office space is emerging as an attractive option for workers and companies that are frustrated with the bedroom-as-boardroom life, but don’t want to return to a traditional office format. 

GameStop: Like many legacy retailers, the video game peddler has been struggling to compete with nimbler online rivals. So rather than beat ’em, it invited the cofounder of e-commerce pet brand Chewy to its board. Investors loved the move and the stock climbed nearly 60% yesterday.

One important wrinkle: GameStop has been an especially popular target for short-sellers, who profit if the stock price drops. Yesterday’s pop prompted the short-sellers to cut their losses...which subsequently drove the stock price even higher. 

SPONSORED BY IMA® (INSTITUTE OF MANAGEMENT ACCOUNTANTS)

Ready to Make a Difference?

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ORGANIZED CRIME

What’s Italian for Showdown?

Yesterday, a judge in the Italian region of Calabria (the boot’s toe) kicked off a massive trial targeting one of the biggest crime syndicates on Earth: the ‘Ndrangheta. James Gandolfini probably just burst into your mind, but it’s more like The Wire meets Narcos meets Home Alone. 

The ‘Ndrangheta is one of the world’s largest drug trafficking networks, controlling over 80% of Europe’s cocaine trade. One 2013 study found it had more financial firepower than Deutsche Bank and McDonald’s combined, with annual revenues of around €53 billion ($64.4 billion). 

• The trial’s 325 defendants include not just alleged ‘Ndrangheta members but also alleged ‘Ndrangheta colluders—politicians, civil servants, and businesspeople facing charges ranging from murder to drug trafficking to corruption. 
• An elite police unit called the Cacciatori (meaning “hunters”) sniffed out the defendants from bunkers hidden by sliding staircases, trapdoors, and manholes. 

Zoom out: Experts say this is Italy’s biggest Mafia trial since the 1980s, when law enforcement tried to extinguish Silicy’s infamous Cosa Nostra—an effort that hamstrung Cosa Nostra and provided an opening for the ‘Ndrangheta. 

REAL ESTATE

If the Taj Mahal Feels a Little Cramped

We’ve got the house for you. Details on Bel Air’s ginormous property known as “The One” for its ginormity were shared with Architectural Digest for the first time this week. 

The specs: 

• 105,000 sq. ft. 
• 21 bedrooms, 42 bathrooms, 30-car garage “gallery,” five swimming pools 
• Bowling alley, 30-seat movie theater, full-service hair and beauty salon

Pretty staggering. But we did find one oversight: the property’s moat only covers three sides, leaving the fourth vulnerable to invaders. 

The asking price? At a reported $340 million, AD calls it “America’s priciest home.” And in case the 10,000-sq.-ft. sky deck doesn’t convince its eventual owner their home is one of a kind, recently passed city ordinances mean a house of this size will never again be approved in Los Angeles. 

We know what you’re thinking and we agree, this property would make a great plotline for Season 4 of Selling Sunset. Sadly for reality TV fans, brokers at Compass and The Beverly Hills Estates nabbed the listing.

WHAT ELSE IS BREWING

• Twitter CEO Jack Dorsey reflected on his company's decision to ban President Trump's account. 
• Intel’s CEO Bob Swan is stepping down, and VMware CEO Pat Gelsinger will take his place.
• Alibaba, Tencent, and Baidu, three Chinese internet giants, will be spared from a US Treasury Dept. investment ban. 
• Unemployment for the lowest-paid workers in the US is above 20%, according to the Fed’s Lael Brainard.
• Target’s comparable sales jumped 17% over last year during the holiday period.
• NBA superstar James Harden has been traded from the Houston Rockets to the Brooklyn Nets, where he’ll team up with Kevin Durant and Kyrie Irving. 

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FROM THE CREW

Brew's Bookshelf

Every other Thursday, Brew's Bookshelf brings you a few of our favorite, business-related reads. In honor of Martin Luther King Jr. Day on Monday, pick up a book on the civil rights icon's big dreams for economic opportunity.

• In his final book, Where Do We Go From Here: Chaos or Community?, King reflected on the civil rights movement and how to eradicate poverty.
• MLK advocated for a guaranteed minimum income, and journalist Annie Lowrey's Give People Money examines how the UBI movement can work.
• MLK also saw parallels between India's caste system and the US’ own racial hierarchies. Isabel Wilkerson’s Caste highlights the consequences for individuals and society.
• In King and the Other America, Sylvie Laurent digs into MLK’s Poor People's Campaign and what today’s progressive causes can learn from it.

GAMES

Three Headlines and a Lie

Another week, another batch of crazy headlines from the news cycle. But one of these headlines is too weird to be true. Can you spot the one we made up? 

1. “Citing 'censorship' concerns, North Idaho internet provider blocks Facebook, Twitter”
2. “Saudi Arabia launches 170km city built in a straight line”
3. “Texas city settles mayor’s race by pulling ping-pong balls from a top hat”
4. “Two ‘Roblox’ streamers are feuding after both naming their virtual cities ‘Blockington’”

ANSWER

We made up the "Roblox" feud.