Affirm CFO: 'Amazon is now interested in making sure that we're successful'

Michael Linford, Affirm CFO, joined Yahoo Finance Live to discuss the buy now, pay later firm's partnership with Amazon and growth.

Video transcript

ZACK GUZMAN: Well, shares in "buy now, pay later" company Affirm are having themselves quite the day. The stock up more than 12% after the company reported earnings and announced a new, more nuanced partnership here with Amazon. We'll start with the earnings there because it was a top line beat to report. Revenue rising to $269.4 million, up from 174 million a year prior. That beat expectations, of course.

Also, perhaps more importantly, the company updated info on its partnership with Amazon confirming it will serve as Amazon's only third-party, non-credit card, buy now, pay later option in the US. And, as part of that deal, Amazon is actually receiving multiple tranches of warrants to purchase shares of Affirm's class A common stock.

For more on that-- what the BNPL giant is up to-- happy to bring on Affirm's CFO, Michael Linford, alongside Yahoo Finance's Brian Sozzi. Michael, appreciate you taking the time here. Obviously, investors very excited-- as they should be probably-- in a partnership to be exclusive with Amazon here as the BNPL giant. Talk to me about how important it is that they're actually getting stock to align the interest here and what the partnership does for Affirm.

MICHAEL LINFORD: Thank you. Look, we're really excited. To be able to move from a test that we started earlier this year into rolling out our offers to the wider Amazon.com this holiday season is just a really exciting opportunity for us. And when you're working with an industry leader like Amazon it's really important that interests do get aligned.

And that means that Amazon is now interested in making sure that we're successful and that the user network at Affirm continues to scale and that we can deliver great results for our shareholders. So we thought that was a really important thing for us to do, and we're really excited for what we're going to be able to do with it given Amazon's scale.

BRIAN SOZZI: Michael, help us understand the mechanics of these warrants. If Amazon were to exercise all of them how much of a stake would Amazon own in Affirm?

MICHAEL LINFORD: Well, Amazon will receive a little warrant grant at the outset. The majority of the warrants that we've struck in this deal will be earned, or vested, over time and subject to certain performance conditions. So very little upfront. But over time we think the interests are aligned. And if they deliver the kind of results, if we deliver the kind of results with them for the growth of our user network and the consumer engagement and experience that we hold ourselves to, then Amazon will be able to earn more warrants over the course of the agreement. But the majority of them are coming over time and tied to performance or results and outcomes.

BRIAN SOZZI: So I'm assuming here that Affirm is going to knock it out of the park for Amazon. Would that bring Amazon, let's say, a 10% stake in Affirm?

MICHAEL LINFORD: So the total number of warrants that are potentially granted is 22 million-- 15 million warrants that have $100 strike and seven million warrants that are penny warrants. And if you think about our current quarterly share count, there's about 315, 320 million shares on a fully diluted basis. So nowhere near 10%. And that assumes that everything falls into place over the next several years.

ZACK GUZMAN: I mean, it does kind of raise questions too, I suppose, about-- obviously, investors are liking this deal. Obviously Amazon is a big e-com platform here to partner up with. I mean, what does it look like in terms of the roadmap for Affirm to build that out? Are there more deals in the works there similar to this one? Or is it mostly, you got the big boy here in Amazon, now you can focus on different partnerships?

MICHAEL LINFORD: Well, I think what you're seeing with Affirm right now is that we're scaling on both sides. This past quarter we scaled our merchant network from 6,500 merchants last year to over 100,000 merchants this year. And that doesn't happen, obviously, with just enterprises. Enterprises are the few. The many is what's happening, as well, in the broader S&B space.

And we're able to do that because of the kind of products that we're able to build and the partnerships we have with leaders like Shopify. Obviously taken together with Shopify, Amazon, and partners like Walmart and Target, we now have integrated relationships with 60% of US e-commerce. So that is a very big field for us to go make sure that we do all the hard work and get our fair share of that business.

BRIAN SOZZI: We've talked to Max a couple of times, Michael, about the new debit card. How many people are using that now?

MICHAEL LINFORD: We've not given numbers yet about exactly how many folks are using it. It is being used out in the wild. For those of you who maybe listened to our earnings call yesterday, one of our analysts, surprisingly, was using the card. And Max being Max took the opportunity to actually ask the analyst for some real time feedback, which I thought was just classic example who we are as a company. So it's out in the wild. We're really excited for what it's going to do, but it's not quite ready yet for a wide rollout. We'll be giving the market an update here probably next quarter.

- Competition, though, is definitely heating up in the BNPL space. We were just chatting in the last hour was Zilch as they became the quickest company in Europe to cross unicorn status-- now setting their eyes here on the US market. When you look at how Affirm sets itself apart-- we talked about credit worthiness in terms of building, I guess, a customer base and being able to point to the metrics that say, we've got consumers out there that are spending responsibly. How important is that in terms of differentiating not just Affirm from competitors when it comes to retail partners like Amazon, but also being able to point to metrics like those? What are you seeing?

MICHAEL LINFORD: We think it's really important that we make responsible decisions. And I think we're actually quite differentiated in this respect. Affirm takes our risk management approach quite seriously. And the nature of our business, which does higher average order value transactions and lower average order value transactions, requires that we take risk management very seriously. And so the investments we've made over the past decade in technology really show up in our underwriting events.

We talk about underwriting advantage, it reflects itself in making sure that when we extend credit it's done responsibly. And if we don't do that we're not able to access the capital markets to continue to fund the business. So these things are all linked together. And it's important for the merchants that we can do this well, because that determines how many consumers we can ultimately approve and delight for them. So it's really important to us. It's underpinned with technology, and it's something we take really seriously.

BRIAN SOZZI: On the guidance, Michael, that you put out for the full year-- does that incorporate any bump from the Amazon relationship? And when should an investor think that you will start to see a large bump from that deal?

MICHAEL LINFORD: The guidance that we gave does not include any of the benefit from the Amazon partnership. And part of the reason for that is it's fairly early. As excited as we are to move out of test and begin rolling the partnership out, that we need to see a little bit of traction before we can give reliable guidance to the street which we anticipate doing next quarter.

In terms of when they should expect a bump-- I think it could be-- it could take a bit of time. If you think about our enterprise partnerships like with Walmart and with Shopify, these things take quarters to really get to the full potential benefit. However, Amazon is really big, and so we do think that there's going to be a benefit here in the quarters to come. But it will take maybe even a year or more before we get to the full benefit of the relationship.

ZACK GUZMAN: I guess one last question from me around the customers you guys are signing up to use Affirm. What does that look like? Because, I mean, I assume some older people out there can just go traditional credit card route if they want to. I always get attacked for ageist questions here because I'm the young guy. But, I mean, what does it look like in terms of what you're seeing in the on-ramp of new customers?

MICHAEL LINFORD: So there's no doubt that our category generally, and Affirm specifically, skews towards a younger consumer. These consumers are generally not wanting to participate in the traditional credit card space for one reason or another. It's either distrust, mistrust, or they've had a bad experience, or had a family member who had a bad experience. And so there's the financial product aspect that matters there.

There's also the technology aspect. The younger consumers tend to want a true digital experience. They want something that was mobile and digital first, and traditional financial institutions just really can't deliver that kind of delightful experience to them. So it does tend to skew younger. Although, you'd be surprised. There's just as many Boomers who are enthusiasts in categories, and we see them taking advantage of Affirm financing offers to get the things that they want and need even later in life.

ZACK GUZMAN: Boomers and Millennials coming together to enjoy what Affirm has to offer there-- linking us all up. It's a good note to end on. The CFO of Affirm, Michael Linford, joining us there alongside Yahoo Finance's Brian Sozzi. Congrats again on the quarter. Appreciate you taking the time to chat with us.