Is Peloton Dragging Partner Affirm Down With It?

Peloton shares crumbled yesterday following production issue rumors but the decline spun off to Affirm too, its Buy Now Pay Later provider.
Jan. 21, 2022
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Affirm (NASDAQ: AFRM) was arguably one of the biggest IPOs to hit the markets in 2021, but the rise of this Buy Now Pay Later (BNPL) star has to give some of that credit to Peloton (NASDAQ: PTON). It made up a significant portion of its revenue in the early days but unfortunately, now, there's a whirlwind of issues flying for the home fitness business which could have knock-on effects.

Not to worry though, because there's a couple of reasons why it doesn't matter.

Does Peloton's decline really matter to Affirm?

Back in 2020, this could have been disastrous for Affirm. Roughly 28% of total revenue that year was from Peloton sales, almost three-tenths of its entire business, which could have flipped Affirm on its head. The most recent weighted percentage of revenue coming from Peloton is no longer being disclosed, but we can see the tide is turning.

A brief look at gross merchandising volume (GMV) illustrates this.

GMV is a tally of the total value of sales processed by an Affirm partner. If we look at GMV for Q1 2022, the company had 84% growth year-over-year (YoY), but factoring Peloton out of the equation, this increase would have been 138%. Looking towards 2022 guidance, the company forecasts at least 50% growth in GMV or "70% excluding Peloton".

While Peloton still makes up a decent chunk of Affirm's business, its presence is dwindling, and when quizzed on the earnings call, Affirm actually commented that "Q1 results for us on Peloton did exceed our internal estimates" suggesting it's not all doom and gloom either.

But more importantly, management touched on the new deals being made to make light of further diversification for the company.

And in that department, Affirm certainly has made leaps and bounds -- partnerships with Amazon, Walmart, Target, Nike, Shopify -- you name it. Amazon obviously has been the biggest deal of all, commanding 60% of all U.S. e-commerce according to Affirm, and they will be the company's sole BNPL partner until 2023, but all of these names are some of the largest companies in the world.

A little statistic to back up how Affirm has diversified its revenue and partnerships in the last year -- it grew total active merchants from just 6,500 at the end of 2020 to an astounding 102,000 at the end of 2021 -- that's a 1,468% increase. Peloton's just one of them, so there's plenty more cash flowing around. 

Takeaway

While a decline in the short-term for Affirm was to be expected coming off the back of negative publicity associated with Peloton, the future looks bright for the company. The flurry of deals credits both the company's reputation and its technology, so whether Peloton declines or makes a rebound, we'll likely still see further expansion for the BNPL leader.


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