Shopify just made a $2 billion windfall on Affirm IPO, six months after their partnership

Key Points
  • As part of a partnership formed in July, Shopify owns over 20 million shares of Affirm.
  • Based on Affirm's stock price after its debut on Wednesday, Shopify's stake is worth about $2 billion.
  • It's the latest boon for Shopify, whose shares almost tripled last year as the pandemic forced more consumers to the web for purchases.

In this article

Shopify founder and Chief Executive Officer Tobi Lutke smiles after the company's IPO at the New York Stock Exchange May 21, 2015.
Lucas Jackson | Reuters

Shopify just came off a huge growth year as the Covid-19 pandemic spurred massive growth in online shopping. Now it's starting 2021 with a bang thanks to an 8% stake in Affirm, the year's first notable tech IPO.

Both companies have seen their businesses explode since early last year, when Covid-19 forced physical retailers to close, giving consumers even more of an incentive to shop online.

Shopify's stock price almost tripled in valued in 2020, as retail chains, restaurants and grocery stores turned to its software to create quick web storefronts, manage payments and keep their businesses running. Its market cap has surpassed $140 billion. Affirm, founded in 2012, partners with retailers to offer consumer loans, allowing buyers to pay for items like Peloton bikes, Dyson vacuum cleaners and Oscar de la Renta handbags in installments.

The two companies forged a partnership in July for online lender Affirm to become the exclusive provider or point-of-sale financing for Shop Pay, Shopify's checkout service. As part of the deal, Shopify was granted warrants to buy up to 20.3 million shares in Affirm.

With Affirm's Nasdaq debut on Wednesday, Shopify's stake is worth about $2 billion. Affirm jumped 99% to $97.24 at the close.

Shopify's 2020 rally

With the partnership, Affirm became the provider of Shopify's new "buy now, pay later" financing service called Shop Pay Installments, which launched for some U.S. merchants late last year.

Affirm said in its prospectus that the Shopify deal allowed it "to significantly expand the number of merchants and consumers on our platform." Shopify serves more than a million businesses, and said in October that third quarter gross merchandise volume more than doubled from a year earlier to $30.9 billion.

A the time of the announcement, CEO and founder Max Levchin told CNBC that Shopify and Affirm will have a "tightly integrated partnership" that lets merchants "flip a switch" to have the product go live.

"We expect massive uptake," Levchin said in the interview. "By making the integration so easy, we expect it to be extremely close to total ubiquity."

The merchant diversification that Shopify provides is important for Affirm, which counted on Peloton for 30% of revenue in the latest period.

But gaining access to Shopify's expansive customer base came at a steep cost — Affirm gave Shopify the right to buy over 20 million shares at a penny each. A quarter of shares issued in the original warrant vested in July. The remaining 15.2 million vested with the IPO.

Shopify is Affirm's third-biggest shareholder. The only bigger owners are founder and CEO Max Levchin, whose 11% stake is worth $2.7 billion, making him the latest member of the so-called "PayPal mafia" to become a billionaire, and Jasmine Ventures, which is part of Singapore's sovereign wealth fund GIC and owns 9%.

The next top holders are Lightspeed Venture Partners, Peter Thiel's Founders Fund and Khosla Ventures.

Shopify shares rose 1% on Wednesday to $1,199.82.

WATCH: Affirm partners with Shopify to power 'Shop Pay' installments

Affirm partners with Shopify to power 'Shop Pay' installments
Affirm partners with Shopify to power 'Shop Pay' installments