Copy Initials Affirmation with airSlate SignNow

Copy initials affirmation

[Music] hello i'm alex mozad and welcome to winner take all where we talk about the constant battle between large tech monopolies and traditional incumbents so today we're going to talk about a firm a firm has uh recently filed its s1 with uh the sec founded by a guy named max lev chin founded in 2012 you may recognize max's name because he understands platforms he unders he's he's founded uh other fintech companies before by a company uh you might recognize called paypal part of that paypal mafia chairman of the board of directors of yelp uh the guy gets platforms is a firm a platform business it's it's an interesting question um i think they have platform dynamics i think they have payment platform-esque model for them which i'll get into later on about why but ultimately i would say overall no actually the answer is no they're really not the the platform components the platform business components that they have are not material enough to warrant uh the entire company you know being classified as a platform business as being included in platt for example when we look at their platform revenue it's actually very hard to discern what if any of of the revenue that they break out in the s1 is actually attributable to a platform business model and so what is a firm basically if um if you want to go buy a peloton peloton accounts for 28 of their revenue and actually 30 in the most recent quarter if you want to buy a peloton or furniture for your house um other home improvement items are are big for them you know larger like big ticket purchases right you want to buy a mattress they do a lot of stuff with casper you have these pretty good sized purchases and you get into the checkout part on peloton well bam here it is right buy with credit card you got all your options here and then buy with a firm with zero percent interest how do they do that right um sounds pretty attractive if you're peloton right so basically you know what a firm is doing the way i would describe is a firm has a b to b to c model and they're making money by lending and when you look into their s1 it gets a little wonky uh with the financial reporting of that and and we're going to dig into that in a second but it's very much so a linear model a a linear model via lending you could say that they are offering a new payment solution right if we look at this peloton thing oh there's other merchants actually there's a nice graph nice little you know imagery that they put into their s1 here yeah you know 65 plus a hundred different merchants and see this is the kind of stuff that confuses people and says oh i mean it looks it looks like they got the flywheel right the thing goes around they're a platform no not really the one part of them that is platforming is this marketplace here which is kind of like a product marketplace more than it is a payment platform um the rest of these integrated checkout virtual card split pay savings i mean the first three are really just different ways of providing credit uh or debt you know loans to consumers that want to buy these bigger ticket items and a firm is helping the merchants sell more stuff by giving creative financing solutions to the merchant's customers and those customers of the merchant now also do become customers of a firm which is great for a firm although this pit the the marketplace bit here that is a platform model but it doesn't really get much other attention in the s1 which means you know they introduced in 2019 i think it's a small hopefully growing part of the business and they talk about they have millions of consumers which is great but i don't think they're really able to go end to end right they don't they don't really own that core transaction right this transaction takes place on the merchant's site it's really between the merchant's customer and and and the merchant and then when that transaction completes the customer of the merchant becomes the the borrower of a firm the marketplace model is saying well i'm taking all my 2 million whatever it is existing borrower consumers and i'm introducing them to the 500 plus different merchants that we have can we connect those people right can we connect those buyers and those merchants together and monetize that that is a you know true platform product marketplace type of model but i think this is a much smaller part of their business the main part of their business which you'll see is really just integrated checkout now here's the cool thing this is right showing you all the different options to pay apple pay google pay paypal that guy he founded you know his founding uh and former cto paypal and then affirm so it is just really cool the guy just max just you know he gets he gets these fintech models and basically what a firm has been able to do is two things really well they've been able to give a really good technology solution to these merchants now over 6 500 of them to seamlessly integrate you know they're literally called here seamless checkout experience seamlessly integrate into the purchasing experience on these more expensive items that need creative financing solutions they're going to help these merchants sell more stuff they've given a really seamless technology tool right so it's tech first it's digital enabled and then they're using data and they're creating their own underwriting algorithms interestingly enough they actually have all this wonkiness kind of financial engineering on how they're providing the debt to finance these loans that's a whole other part which we'll get into but those two things those are really the main value prop really good tech and they by their estimates in the s1 they say that they're able to approve 20 more consumers and they have a 1.1 delinquency rate which is really good for the business they're in so they're saying we're going we're able to approve more people and have a and have a low delinquency rate that's kind of what you want to see right that's the holy grail and they attribute that to their underwriting model and and you know all their data and and learning um i think that's this chart proprietary risk model generates better outcomes right so if they just went off your fico score that's the red line basically they go off the blue line and that means they can approve more people the way it works is you know you can either you can get the zero percent apr uh deals and then the merchant is gonna pay um is you know someone's gotta pay a firm for that a firm's just not gonna give away like free money with zero percent interest uh they can't make any money and and that means that the merchant is basically you know is basically giving fees to a firm to provide the merchant's customers with zero percent you know sometimes multi-year loans right to buy a peloton bike and then they have uh deals where you know you are you are paying interest as a consumer and you know then a firm is really making more of their money on the interest as opposed to the merchant paying a firm a fee and they basically refer that as merchant network revenue here it is merchant network revenue is where a firm is providing zero percent interest and the merchants giving them you know a fee about 250 million dollars uh in the fiscal year ending june 30 2020 up almost double from the year before and then interest income this is right i'm giving you a five percent loan and and then they're they're keeping that spread maybe the merchant pays them a little bit also um on the interest loans but you know they're getting probably majority of their um income uh from the interest as opposed to the merchant fee but they basically have some mixture these are the two main levers right i mean look at the and then they have the virtual card network revenue which is you know minuscule so i mean those are the two main drivers and then the rest of it is other things which we'll get into servicing income gain and loss on sales of loans and the virtual card network revenue basically that's how i'd simplify it see this stuff loss on on loan purchase commitment and provision for credit losses and you're like funding costs i mean that's a little bit more straightforward but those first two things are kind of like uh okay provision for credit losses i kind of get that loss on loan purchase commitment and you're like well how does that make any sense i thought a firm you're lending the money in the doesn't right how does that make sense basically what these guys are doing is they have a lending partner it gets a little wonky basically they have a more traditional bank which will buy these loans sometimes you know they will actually be providing the loan below market value uh and then and then a firm has to buy the loans back from the bank and then a firm will also then sometimes sell those loans i would imagine underperforming loans off at a discount to other partners because they don't want them on their balance sheet this is where you know the picture of the company gets a little murkier clearly they have loan purchase commitments with this main funding partner of theirs and then um they have loans on their balance sheet and then they're selling off loans to other people as well other partners which which they don't list in here and that's where you get a lot of this back and forth which again i think is is is part of regulatory thing you know how they want to balance their balance sheet what they want to keep on the books versus off the books um and and so on and so forth how do you value the business and and you know what do we make of all of this um so let's go back to right how are all these businesses valued growth all growth plays here is the gmv this is the key key stat the rest of it is kind of below the line how are they managing their costs and financing these things it's not as simple as evaluating kind of more traditional banks but you know again a firm is lending um they're kind of like a tech enabled bank um in this respect with this b2b to c kind of distribution model using these merchants and providing creative financing solutions gmv though is the key mechanism the key driver to see how well is a firm doing this number grows by them signing up more merchants and their merchants continuing to grow the business uh so this is you know this is the impressive stat 2.6 billion dollars of uh you know things purchased through a firm so these are dollars you know i think these are loans issued and then 4.6 billion the following year very very substantial growth active consumers you can see that going up also this transactions per active consumer i i kind of discount that and look at that less contribution profit is a percent of gmv you know this is saying that they're able to pull down more dollars um and you know carve out more revenue carve out more dollars and profit uh from that overall gmv number right how well are they monetizing uh the gmb and having that flow through their p l growth here from year to year right of gmv growth year over year 4.6 to 2.6 versus their loan purchase commitment loss 160 million versus 73 million you know okay that kind of makes sense right technology and data analytics 122 versus 76 uh their s their gna 121 versus kind of 89. you are seeing right kind of these expenses grow somewhat linearly with matching to gmv if if the costs can kind of match to gmv and if they can eke out more revenue and more profit as a result um right you're kind of saying okay yeah that's that's trending in the right direction let's jump down to the balance sheet cash fine loans held for investment 735 up to a little over a billion right so you can kind of see funding debt so um this is their kind of dry powder you know what what can they use to seed more loans they say if you combine the debt they have on their the allocation they have on their balance sheet for them to underwrite loans themselves plus their partners they say they have over four billion dollars worth of capacity so they've got plenty of capacity according to them that's not an issue um they're holding some of these loans on their balance sheet as an investment right and and making that interest income i would imagine kind of the way they do this is they say well uh if i'm given a zero percent apr loan then i don't want to hold that on my balance sheet i'm gonna give that over to my partner they don't spell this out for you but this is this would be my understanding of why they get it gets kind of so trickery here if you have a zero percent interest loan a firm has made their money right they've made their fee the merchants paying them a fee they're saying okay well uh cross river bank take this off my balance sheet i'll give you a spread someone's gotta right provide for the loan cross river bank maybe they get three percent or something like that three or four percent crossover bank gets their fig if a firm's getting i'm just making up numbers firm if a firm's getting a seven percent fee from the merchant they've got a spread of three and a half or four percent with cross river bank firms cashing in call it two two or three percent after all the other fees and funding fees and processing fees and whatever that net they're banking two to three percent maybe that's their contribution profit margin that they you know they that we were showing you early it's right it's around like two now it's up to in the threes percentage range maybe that's kind of what they're getting at with that but the firm doesn't want to keep that stuff on balance sheet if it's it you know it's not it's not they're not earning anything off of it so they don't want it on the balance sheet bam shipped that off to cross river bank now if there's delinquencies from crossover bank crossover bank is basically you know getting insulation from this and they're saying well i'm not taking a loss on this a firm you got to buy that back from me and then sell it off and then a firm has eaten that out of there say two or three percent margin again they haven't spelled out these these numbers i'm just using them for example and you know one percent of those that one one to one 1.1 delinquency rate whatever a firm's spread is has to cover that delinquency rate then you have loans that are actually paying them interest presumably that's these roughly one billion dollars worth of loans held for investments they want to keep them on the they like it's fine and they're earning i don't know five percent interest or whatever it is and the consumers are paying them the interest and that is kind of the more traditional banking model that's my guess at why you kind of have all these this back and forth and and the p l and it doesn't look like a classic bank because they have these kind of two models this merchant network revenue and this interest income revenue what doesn't make sense to me is why you only have a billion dollars on your balance sheet um is it that those loan you know maybe some of the loans are paying you too low of an interest and then you're kind of selling those off to other people maybe and they're only keeping you know kind of the aaa loans on the balance sheet maybe curious if that's what they're basing their delinquency rate off of or the net number gmv which is really what they should be doing i think the company is above water so i would imagine that is what they're doing i don't know a reason to think that's not how they're measuring 1.1 percent delinquency rate but point is they should be getting a lot more interest rate uh loans than a billion dollars right if they're doing 4.6 billion dollars in total throughput then they should have at least 2 billion of these interest rate uh loans and someone's got to be taking those so you know those are going somewhere who knows exactly where but they're going somewhere because they're not sticking on a firm's balance sheet last thing one of my favorite topics cash flows baby cash flows it looks like they kind of have free cash flow but they don't um the only reason why they don't have way worse free cash flows because they're raising money they're losing money from their investing activities they're losing money from their operating activities they're a bank right so banks where do they get their money from well people put money into a bank account and then you know they take the depository receipts and then they can reinvest those and then put them out into loans and that's why the fdic and and and finra set um and and maybe the fed sets the um minimum kind of capital proficiency rates of banks right they have to have a a certain ratio a certain amount of capital they can't you know they just need to have cash right um so if you have all these these money in different kind of depository accounts savings accounts checking accounts you know the banks have to have a certain ratio they can't lend all that money out in in in via loans right there's rules on how their balance sheet needs to look and and and for liquidity reasons and stability reasons and all that stuff these guys don't i mean they have a savings account but it's not bringing in you know nearly enough cash so they got to finance these loans they got to finance their operating activities somehow some way so that is from these financing activities and you can see that here net cash provided by equity related financing activities right and then proceeds from issuance of convertible preferred stock um that's that flows into this equity related number 292 million last year 51 million uh this year and um and then debt related financing activities so they're taking on debt this is a linear business um it's a linear business run by very smart people where i think they're very well positioned uh but it doesn't have the lock-in that that platforms do and i'm frankly kind of surprised why no one has really gone after this space as aggressively like why doesn't paypal do this i mean paypal is trying to do some credit stuff have been for years but you know they even have the screenshot of paypal up there right it's apple pay google pay they're not going to do this anytime soon paypal affirm where what are you doing on this paypal um i think that's dan shulman former uh executive member from amex um who else synchrony would be another one that comes to mind if you don't know what synchrony is you know all those company companies like you go to macy's and you get a macy's credit card that's synchrony synchrony is underwriting the debt they're providing the the technology and the capability to have a credit card they're doing the credit check they've got all that infrastructure to power uh these merchant powered credit lending programs right i mean it's kind of like the 20th century version of a firm why isn't synchrony doing this right this seems like a huge missed opportunity to me for synchrony and synchrony 18 billion dollar market cap um what are they doing and and and what uh goldman is doing is goldman's going basically directly after synchrony goldman is powering that apple credit card right and goldman really you know i and goldman might have even eaten it on the economics for that deal with apple um the the ceo of synchrony was actually trashing goldman um for having done the deal and wow synchrony's just she'll probably get fired um look at this i mean they just keep missing their earnings yikes goldman encroaching right on synchrony's turf synchrony i think big missed opportunity to do what a firm is doing step into this model they already have all these merchant relationships a firm coming in um big miss now they're too big now you know synchrony you can't buy them just asleep at the wheel um kind of yikes and paypal sleep at the wheel um goldman i i wouldn't oh you know they they spend big money i would not put them out of the any league to say if they wanted to get into this they can get into this um but synchrony is out of the race paypal could should be in the race goldman could be in the race but they also got a lot of other stuff going on so that'll be interesting do i like a firm um i mean yeah they don't look they don't really have much competition they should and and they could um i wouldn't say that they have such a strong network effect that you know they have some kind of winner-take-all platform dynamic i really don't think it exists i just think that um they do have strong defensibility even with a more linear tech enabled lending model uh because you have these strong partnerships with merchants and and all these kinds of things you know now with their public they can be more aggressive and and and and they have such a head start it's just going to be very hard to catch up um but it could be if someone really wanted to you know a paypal a goldman not really a synchrony like an amex frankly you know that's comfortable underwriting debt on their balance sheet which if you look at a visa and mastercard they actually don't take balance sheet risk it actually goes to a partner bank um it really doesn't sit on visa mastercard balance sheet amex does take balance sheet risk however it's a little bit different but a firm has balance sheet risk and and that's clearly a material part of how they monetize right so um interesting stuff i think max is is very strong i think it could be a good investment um i don't feel too s strongly about the platform dynamics here but it doesn't mean that it's not a good investment or it's not a good price looks like they might ipo around 10 billion dollars they were valued at about 3 billion in april of 2019. so um they i mean i think a firm's done very well clearly even with the pandemic and covid and everything here because there's been a lot more spending on exercise equipment and home improvement stuff and these kind of purchases for the home uh generally which which a firm does very well in i do think there's a lot of upside and there really isn't that much competition yet but there could be with some really big players that that want to get into the game curious who they would even buy though to catch up i think a firm does have a nice head start on on where they are at with things um so what is only fans big 180 from a firm to only fans only fans is um it's a content platform and no i don't have an account okay but if i did and if you happen to have one basically what you would find is nsfw not safe for work content basically horn from adult entertainers which you know especially now because akova got to make a living somehow and only fans has been on a tear thanks to corona look at this chart bam blue lion is only fans red line is patreon orange is twitch cameos all the way down the orange or like dark orange colors are kind of difficult here but anyway the blue is only fans look at what happens in march you know january february march boom i mean the thing was already going up end of last year and then it's just exploded this year you know the way it works is you're an adult entertainer and you got a social media following but you can't put uh you can't you know show flesh and all these kinds of things on instagram and snapchat and people have tried uh in the earlier days of of the content of the of the social media content platforms and then they get banned um and you know we saw that with snapchat a bunch of places right and that used to be a big thing uh tumblr actually had a bunch of porn on it and then they decide to get rid of it and like literally like 40 of tumblr's traffic disappeared fun story now enter only fans um it's expensive uh i i i know what it is but i think you gotta pay like at least ten dollars a month per person that you wanna follow or something like that and then they create content for you and and then there's you know there's primos right like you can chat i think you might be able to like do one-on-one live streams or whatever i mean there's a bunch of primos but they have over they have over a hundred creators making over one million dollars a year it's big big money they have over one million creators total they have over two billion dollars paid to creators over the lifetime and they got an 80 20 split right so that that means just back into it two billion dollars paid they're cashing in 400 million dollars in their fee with the 80 20 split and this is a true content platform model it's just on fire i mean you see if you've seen on social media you know instagram snapchat tick tock etc you have these adult entertainer types that have social media accounts have a following um but they can't show you all the things that they want to show you uh but they will promote now their only fan's account say hey go over here sign up for only fans and it's only 10 bucks a month or something like that bam now you get full access so that's only fans i mean good good for those guys um so that's only fans um okay so in you know in the um never-ending catalog of uh you know why communism sucks we have exhibit number you know 220 here from john mackey whole foods ceo i think he has some you know interesting things to say check it out capitalism or actually i prefer deidre mccloskey's word for innovationism innovationism is the greatest thing that humanity's ever created i mean if you go back 200 years ago when when when innovationism was really beginning to pick up steam 94 of everybody alive on the planet on earth lived on less than two dollars a day ninety four percent only six percent made more than two dollars a day that's in today's dollars today that's under 10 percent the average lifespan 200 years ago was 30. now it's 72.6 in advanced countries developed countries it's closer to 80. illiteracy rates 200 years ago across the planet were 88 now they're 12 percent i mean if you read stephen pinker's book enlightenment now you will just see documentation after documentation after documentation about how much the world has progressed it has been science and technology combined with innovationism as the entrepreneurs took the scientific discoveries and operationalized them to make our lives better it is the greatest thing that humanity's ever done business people are not the villains of the story they're the heroes of the story the entrepreneurs are the ones that that create great progress and um yeah they're universally vilified for the most part i think it puts it really well there capitalism is great communism sucks uh he not his words my words another example look at this chinese rights activists who oppose hong kong security law tortured i you know uh guangzhou based rights activist zhang zhao has been subject to torture in detention after she opposed beijing's imposition of a draconian national security law on hong kong according to her son uh jong was held after she posed for photos uh on the 31st anniversary at of the tiananmen massacre holding up a slogan that read withdraw the draconian law she uploaded these photos to wechat and then was in trial shortly thereafter and has now been tortured she had clearly been injured and and she was kind of hunched over she had been tortured by police to extract a confession they wanted my mother to convince having colluded with foreign powers she said she was restrained six shackles and handcuffs and left that way next to the toilets for six days and six nights with them kicking her in the back the whole time it's just sad to see hong kong is lost you know our freedoms are being encroached upon all around the world and including in the united states uh but i have faith in our system i have faith in uh our constitution i have faith in the system of government that our founding fathers created here and um i think it will prevail as it has for you know hundreds of years so far it's worked pretty well for us look at john mackey's you know uh statements around capitalism and and how much good that has done and our kind of way of life government freedoms in this country um it may seem uh scary at times but this country's actually gone through a lot of these similar things in the past and we've come out ahead actually for it and um uh you know if if if you are a um learner of our history both u.s history and and i mean just other other you know uh nations and you know a lot of these things have have have happened before fortunately i think our founding fathers also were fans of history and have seen what happens um and and have put in a a process here to make sure that uh our our rights our freedoms can be protected or reclaimed uh when infringed upon taking a correct cue from that is what india is doing which is banning 43 more chinese apps over cyber security concerns they have now banned more than 175 apps with links to china and now i've done an additional 43 so they're over the 200 mark remember they did around 49 or 50 back over the summer so they've continued to ban more since then and they've just done even more now here's the interesting thing it's working not only is it protecting and providing a uh you know what we've seen for example snapchats earnings snapchat going through the roof because their chinese competitor apps are gone from india that's good for us tech companies operating in india but it's also good for the native indian tech startups that are trying to compete against both u.s and chinese tech competitors but now really just us competitors so net net that's a positive thing for both of those parties and these chinese companies want to get back in badly the apps that have been banned include tencent their short video service called snack video their e-commerce app their delivery app their shopping app etc in recent weeks pubg has registered a local entity in india and partnered with microsoft for computing needs kind of like this this potential tick-tock oracle deal which we're going to get to in a second which all the media was saying oh tick-tock's fine they got nothing to worry about false uh tick-tock just received an extension from cyphus the committee on foreign investment in the us and they're still reviewing it they've given them another week while they review it but the company is still on the ropes they're not through this yet it is a fool's errand to try to dilute the the serious uh predicament that these chinese uh companies you know tic tac especially are in and in the united states and elsewhere around the world and i only think it's going to heat up and get worse for them frankly probably correctly so so they've registered a local entity in india partnering with microsoft and publicly vowed to invest 100 million dollars in the country seems like a pretty good deal for india right they're supporting their local tech companies and then the chinese companies that really want to get in are basically saying hey we're going to invest we're going to hire more people there we're going to we're going to put more money into india remember when we had benedict evans on the show maybe a couple months ago now and i was saying chinese tech protectionism has absolutely helped nurture and garner the chinese tech community that they have today and the chinese tech protectionism it's basically saying no one else can operate in china unless you do some i mean that wasn't even for tech companies but they basically just banned all foreign tech companies from operating in china um and if you did i mean you just had to just bow down to any and every uh requirement but you look at this you can clearly see how tech protectionism helps really harbor and nurture that tech community from being thwarted by large foreign tech monopolies either from the u.s or now from china um it works and if anything then you know the companies that were operating there want to enter the market come in and say well we will commit all these assets and all these resources and all these investments in your country if you let us in because we want to guess what make money off of your citizens that's how it works india's figured it out i i hope you know the eu catches on to this i hope we see more of this in the u.s there are legitimate national security concerns here and it's reciprocity baby this is what china does to every foreign tech company that wants to operate in china so why on earth would we ever allow a chinese tech company to freely enter another country if your tech companies can't enter the chinese market why would you ever agree to that deal the answer is you shouldn't be so good job india um and uh and also i mean who wants to help a communist government anyway uh yeah not me last thing is you know we spoke about this we saw in the rumor mill salesforce buying slack looks like the deal is done salesforce is buying slack for about 28 billion dollars you know i think it makes a lot of sense for salesforce why they're doing this and the enterprise software play the collaboration play that they get from it you know i think slack was seeing some pressure from microsoft microsoft teams is doing very well microsoft has has been not has not been shy to publish the growth and the engagement and the usage they're getting from microsoft teams which has been pretty substantial not to say that slack is weak and desperate by any means slack is is doing very well for itself but still in the grand scheme of things this is a sub 30 billion dollar acquisition and sales force is has over 200 billion dollar market cap it's a material uh acquisition for them but i think net net will be a good one as they can penetrate deeper beyond just kind of crm and sales and marketing functions and now they've gotten into more customer support functions but now you're really getting into that broader connectivity that broader kind of collaboration throughout the enterprise which is very powerful atlassian really is the one that atlassian stock should be way down because of this it's not atlassian is now dancing between giants microsoft on one side and salesforce on the other side i mean atlassian is is not tiny 55 billion dollar company but microsoft is in the trillions salesforce is in the hundreds of billions and atlassian is a clear distant third now and as we know winner take all dynamics don't lend itself well to third place so i'm curious to see how at last scene reacts to this um but yeah this this to me should should actually be much more adverse news for atlassian than it should be frankly for salesforce that's it for us today on winner take all thank you for joining us i will talk to you soon