Affirm CEO on Investing, ClassPass CEO on Live Streaming

We're talking about Max Levchin, who today is founder and CEO of a firm. He joins us on the phone from San Francisco. Max, delighted to have you here with us. First of all, tell us a little bit about how you're doing, your family, your employees. How's everything going? Great?

Great to be with you. Thank you. You know, I have to say, knocking on woods, we've been extremely lucky a firm transitioning to our from home seamlessly, almost almost perfectly, really, and we've been able to support our partners and our customers and our employees throughout this fross us generally without too many crazy fire drills. So I'll then I feel very lucky and certainly aware of companies where those sorts of people already took place, And you know, I think

some of this is just getting started too well. And Max, it's interesting. I mean, it comes at a fascinating time for you where there's so much momentum around what you're doing at a firm and you have this pretty incredible window into consumer spending. First of all, remind us exactly how a firm works, and then we'll get into sort

of what you're seeing through some of that data. Sure, a firm serves primarily a young, younger audience, as in our customers are primarily millennials and Gen xtas and so forth, and we're really a credit card alternative. You would find this if you're buying a Peloton or shopping at Walmart dot com and really every fortuna between. We are there in the checkout page, sometimes on the product age where if you don't use your credit card and would like to pay for an item or I am time with

a great degree of simplicity. Everything is clearly priced, there are no feed of any kind. They're not even a late fees. So it's a product that really built on this idea that if we communicate very clearly to our customers what it takes to pay something over time, they would choose us over credit cards and work at it

for eight years. At this point, we have many thousands of merchants that work with us, and many, many, many millions of customers billable dollars these transactions that we processed, and so we do see demand in retail, primarily online, although we have a meaningful presence of offline as well, And so you're right, we have some some fascinating status

for reserving. Well, let's get into that. Tell us about because you know, Jason and I have talked about just kind of on our own world what we're spending money on right now, and earlier we talked about, you know that millennials in particular might stop with all the experiences and they're gonna be spending on their home and other things because that's going to be the world we're living with and and you're not gonna be able to travel easily.

What are some of the data points that you guys are seeing about where people are spending their money, right Yeah, so you pretty much nabled it to have to say I think that the headline is exactly right, millennials, and we're not just starting monials like many of our customers are so on the younger side. But everyone has sort of turned inwards. So if you are setting up your home office, your home jim, your home restaurants, or your at least the kitchens part of your home restaurant, that

is growing off the charts. So just give you some stats of office sales that we are processing. Is up um overall homewears from mattressists, furniture to the decoration, you know, everything that you might have once you have to make your home nicer, you ab, but there's some segments that are just incredibly high demand right now. So the kitchen supplies,

for example, are up. Apparently everyone has to baker and make their photo starters, and so sure enough, there's lots and lots of things that you need for that, including breadmakers, which is one of the top categories apparently, uh of fitness. You know, as you bake you need to burn the

calorie suit, so across the board, you know. Obviously, Peloton is a one of the policy traded companies that that's not extordinarly well in that category with Mirror an tonal and all these other merchant partners of ours are all reporting huge growth the overall categories of the hundred and six, which is you know that that's an incredible growth. Give then how big it already is? Um. I can sort of go on on on the sort of the losers

on the other side, or portioned ones are also quite predictable. Um, clothing, you know that we need to wear pants on zoom, and so most you know what most people seem to be not shopping for for fashion? Um Uh, there's actually just footnotes. I'll come back to that in a second. But clothing is down, travel decimated, really a decimating sense. But let's jump back into our conversation now with Max leve Chind. He is the CEO of a firm, co

founder of PayPal, a stalwart of Silicon Valley. We want to talk with him more expansively about some of his experience and what happens next. But Max, before we leave a firm, I do want to ask you. This has brought into sharp relief a lot of trends within buying and retail and merchants, so many things. I do wonder from your perspective, what does this accelerate or what does it accentuate. I guess when it comes to the future of buying from the merchant side of things, lots of

different things. It could be a multi hour at this point, because what's the most important thing? Then I didn't just

be the the your your conversation about the Olympics. I think every major retailer with a significant presence offline is going to have to reinvent themselves from both logistical and reusef management perspective, where showers are gonna become warehouses and front of the house is going to become film into the house, and so there's just lots and lots of major movement that I take with especially for folks with

large real estate holdings. And then while they're doing this, they're gonna have to retool themselves for existence that involves by line, pick up and store, by over mail of return and store. There all these new problemies that used to be exceptions are now going to be front and center because people are not going to be comfortable walking around a large store with a salesperson in their face.

And so as this takes place, I think it's going to create massive opportunities for people that create software that run the service systems and connect the dots between different warehouses and fulfilling pipelines and things like that. So I think that's probably the thing that I'm hearing about more and more in just the last couple weeks. Yeah, that

makes a lot of sense, right. Crisis creates, you know, certainly disruption and innovation and because you kind of have to figure out a new way to do it, and you have to do it fast if you're going to survive. I do wonder to max when you look at specific retail categories, like I look at big department stores, are people going to want to go back? And I know that's easy for me to say because I live in an urban environment and I have lots of options, but

I do wonder. And you know, if you're out in suburbia, that's where you go to, you know, if you want to go to a brick and mortar. But I do wonder what your thoughts on about, you know, like department stores on the other side of this, who are already in a beaten down state. I think the we C will absolutely go out of business. I don't I don't think that's a that's a question at this point, the

strong ones will innovate. I think it's an opportunity for those that want to double down on if it's good retail and create the impression, hopefully the reality of safety. You know, maybe instead of having a physical sales person, you'll have an you know, iPad on wheels, rolling around whether you're in a store and telling you where to look. You know, I think the physical distancing and concern for

just personal safety is going to prevail. But it's not as though we aren't going to get out of the house, especially as soon as we're allowed to do so. It's just we're going to take places where we feel safer, we feel like we aren't likely to get what we need fulfilled, and not expose ourselves anymore than we absolutely must. It's just, you know, trips to the grocery stores have never really ended because people need to eat. People are

going to go buy pants again. They're just going to be true stores where they feel the safest and that they're going to get in an out and get things done right. Max, I do want to. I mean, especially given your experience and history, and you know you're there on the front lines of Silicon Valley, You've watched, I'm sure with great interest. Is we have all of us as a society sort of wrestle with technology over the last few years and the role that it plays and

the good and the bad. I do wonder how this, in your estimation, this pandemic has changed our relationship with technology. What do we know more about, what do we think more about as we go forward, especially given what you just said as it relates to brick and mortar and

sort of that physical experience. I think everything, all the choices we have to make are brought into sharper relief, and I think right now we are in this extreme triage mode where you know, give have a video conference and company that has a well known, retly significant security bug, and everybody says, well, that's a real problem. But I'm still going to get on my call right now because I have to run my business started to do this or that, and so many choices that we make are

going to be extremely utilitarian and far less theoretical. Yes, I care about my privacy. No, I'm not going to hang up because I need to finish this negotiation or this contract. As we sort of get into a little bit more normalcy or get used to the new normal. We are going to get back to sort of a little bit more navel gazing and questioning. You know, are we making the right trade offs? That said, I think, you know, even the conversation around will Google an Apple,

there's a property working on to trace contact. They're gonna be a major privacy violation or not. I think in the world where we're canceling Olympics, which to me is a sort of cornerstone events that defined society because we just can't guarantee safety, I think we should double down and leading to technology that will allow us to enable such events again. So I think in that sense, I'm a big technology bowl. That said, I think over time, as we get used to things, we will probably start

questioning some of the decisions we're making. Well. And that's interesting. So what are some of the big technology things that you think will be kind of part of our normal world that allows us to get back to normal, I know, you know, beyond masks and social distancing. Um, what do you anticipate. I think it's could be all kinds of really amazing innovation. I think things like contactless ways of opening doors, ways of clearing security, ways of not having

to take your mask off to identify yourself. Ways to make sure that your privacy is in fact preserved when you are being alerted about being too close to someone who's later on been diagnosed, Things like tracing locations to make sure that you're actually honest about your quarantine. There are all sorts of things that are going to make us uncomfortable from the privacy point of view, but are going to be very very powerful as far as alant

of society too. Feel that things are a little bit safer in a sort of different side of the spectrum. I think news and radio and all the content that we have to consume, even the notion of truth in the content we received from the various forms of ways is going to really matter. People are hungry for you know, it is a vaccine story that I just heard about

real or does that be the first? So there's a lot of societal impact that I'm seeing that technology I think has an important responsibility, let alone the right to play it. I have to say I just talked talked with a major PR executive who said facts need to be put into the bloodstream because we've just gotten to a point where there is a lot of misinformation and I think it just you know, pivots well off of

what you just said. I think we are extremely extremely hungry for honesty and clarity, and epidemiologist's job is to tell you very uncomfortable things that you really really have to believe when you can't see them. Right. I think that's that that status that is what we have to enable at this point. Right, all right, Well, we've really enjoyed this. Thank you so much for spending some time with us. Matt ledged left Chin excuse me. Max Levchin is the chief executive officer of a firm co founder

of PayPal. He joined us on the phone from San Francisco. Uh, you can see why he's been so success in all of these technology companies because he's always thinking around the corner in many ways, Carol, and understand the implications of

where we are. And I think the one of the most important things he said was sort of differentiating between this triage moment and then when we get on the other side, are able to take a breath and figure out, you know, what are we doing, what are we comfortable with, what are we not comfortable with? That's going to be critical here, well, in technology as simple as opening doors and things like that. So I love it. You're listening to Bloomberg Business Week with Carol Masser and Jason Kelly

on Bloomberg Radio. All right, you are listening to Bloomberg Business Week. Well, our previous conversation. I love it when it happens like this sort of tease us up for our next conversation in many ways. Um, another guest, very familiar in the tech world and now in the fitness world. We're talking about Fritz Landman. He is the CEO of class Pass. Jonius on the phone from Montana and Carol. In our conversation with Max left and he talked about

at home fitness booming. He mentioned Peloton and obviously fitness very close to the heart for you and me, both on the boutique side and on the in home side. Fritz, great to have you with us, such a timely conversation. We really appreciate it. Great to be here. Thanks for having me. First of all, I gotta ask you, what's it like in Montana. I trust your well, your family's well. Give us a sense of it because you are in a very different place than we are here in the

Tri State area. Yeah, class Pass has distributed across New York, San Francisco, and Montana here in the United States, as well as London, Singapore, embarrassed international cities. We have a

big office here. It's been a great place to be honest, to be experiencing this catastrophe and this this pandemic because first there's natural social distancing, and second the governor, Governor Bullocks was extremely proactive in shutting down schools uh and then eventually shutting down the state, you know, even including our our partner gyms and fitness studios and restaurant on twitch. Has led to this Montana having the lowest per capita

rate of infection of any state in America. So it's been a good place to ride, ride things out to able to go hiking and fly fishing and stuff like that on the weekend. Yeah, right, So kind of a much more normal life than what some of us have been living through. What you call it normal, I mean my my wife, you know, as our four year old toddler here, and I don't think you would call it normal, but uh, And certainly running a fitness company during a

pandemic is right now, anything but normal. But it's as good as one could hope for's we'll talk to us to about the usage rates and what you're seeing on your platform as more folks. We've talked Jason and I've talked a lot about it. I've done yoga classes online um through Zoom and you know, we're all figuring out how to stay fit while at home and sheltering in place. Yeah. Yeah,

well it's been you know, extremely disruptive obviously. We you know, for those listeners who don't know what class passes, it's it's basically the Netflix of fitness. So you pay a monthly subscription and you can access our entire network of you know, thirty thousand different gyms and fitness studios across hundreds of cities, across thirty countries anywhere in the world.

So it really unlocks access to variety. But all of those classes historically were these offline classes, right, you go to the studio, you go to the gym, uh and you go to a different places. With these shutdowns, you know, it's been devastating for our our business because over of our partners, you know, we went from having the fastest growth,

you know, really robust momentum. We raised the big financing in December two suddenly we started to see the outbreaks happened to our Asia markets UM in February, and it just you know, rolled through then through Western Europe, then emerged in Seattle, in San Francisco, and then rolled through the US. Of our studio and gym partners have been forced by the government, you know, to close and and

to shutter their operations for the time being. So you know, obviously it's been devastating for the fitness industry and and really all of us have had to scramble to try to pivot and try to help each other get through it. And that's why we pivoted to launching a live stream video fitness platform, and also why we launched a donation system, you know, with with matching of up to a million dollars for our customers to just donate to these studios and gyms to help them get to the other side

of this disruption. So hopefully they you know, a lot of them are now monetizing video workout through class paths to our customers who are using Zoom or Instagram Live or YouTube lives um and a lot of our customers, you know, are just donating to these studios to help them get through it, right, Because I mean, I think it's it's easy to forget for its to to some extent for a lot of folks out there, that many

of these are just straight up small businesses. They gotta pay rent, they've got a small uh staff, you know, often contractors or you know a small number of full time employees. What are you hearing at least at this point, you know, six seven, eight weeks in, depending on on where you are about how generally people's ability to to sort of hang on it at least to now what sort of rates are you seeing and people just saying, you know what, I'm out? Great question. You know, that's

probably the single biggest question for our business. You know, Question one is probably how how many of our customers will move to these video workouts and then stay there once these markets come back. And question two is really how many of our partner Jim's and fitness studios can get through these periods of shutdowns given that you know, I saw report saying the average retail business only has

a month of cash you know, on the balance sheet. Um, and you know, really we've been encouraged to be honest, now it's too early for us to celebrate, but we have been encouraged by the fact that here we are between you know, five and eight weeks into the shutdown, and you know, out of our thirty thousand partners, it's been in the tens of digits, not the hundreds or even thousands, which is or tens of thousands, which is

what we were worried about. That shoe could drop any day, and so you know, it's too relate to declare victory

and success there. But we've been encouraged by you know, one, our partners have moved very aggressively, including on some really painful cost cutting measures, right, so they've moved aggressively in terms of launching these live streams and now class passes, sending out material revenue to these to these partners, and they're having their instructors give these classes from home or from their apartment or uh, you know wherever um and

we've been able to get a pretty big audience. You know, over two thirds of the thousands of partners who have launched these have started seeing reservations and revenue from from live streaming. So we think that's helping. We think you know, obviously our donation program and also asking our customers and their own customers to buy gift cards and advantage. You've seen many people do that for the restaurant industry. And then you combine that with UH, with with the stimulus,

and you know, internationally it's a Western Europe. The stimulus packages have been very strong UH and in the US they've been very aggressive and fast. We've been pleasantly surprised there. I think globally there's still they're still waiting to shake out to see how big of an impact is that many have UM. A lot of our partners have had problems accessing the stimulus, figuring out how do you even apply for it? You know, don't know where they are.

But but so far, so good, you know, knock on wood work, cautiously optimistic that most of them will survive as the federal government step up and say to these folks, hey basically put your business in the mode. You are listening to Bloomberg Business Weeks to with us. Fritz Lanman,

CEO of Class Pass, on the phone from Montana. So, Fritz, I do wonder, you know, on the other side of this wherever that maybe what does this look like to to some extent, especially as people get used to working out at home, maybe more so than they did before. Carol and I are, as I said at the top, like big fans of boutique, but also big fans of

working out at home. A minute, and I do wonder what's sort of permanently different or at least different in the short to mid term once once new normal sets in. It's a great question. And uh, you know one that the team and I are are asking each other, you know, constantly. I think, I think our expectation is that the future is heterogeneous. Right, you have both digital options and you

have real world options. From the real world standpoint, you just you cannot be the immersiveness, the sense of community, the sense of accountability of being in that studio, having an instructor, having all of that specialized equipment. You know, most people cannot afford to have wait system, a treadmill, um you know, a boxing bag, right, so all of that gear of a plauates reformer machines. So there's a level of immersiveness in offline. But I just don't believe

digital is anywhere near capturing. And I say this is a happy consumer of digital products myst ALP, including my own livestream classes, the advantages digital have is obviously there's no geographic constraints, so now I can take classes in London. And indeed, many of our customers, about half the thousands of customers who are taking these livestream classes, are taking them in cities outside of their own city, and I think tend to fifteen percent so far, or even taking

them from other countries, which is pretty cool. So you have that advantage, and you have a big convenience and and tend to have a price advantage. And one interesting thing we're seeing is it seems like digital it's easier to unlock that social experience with your friends. So in offline workouts, people tend to build a community with strangers and they become a part of their sort of fitness

social group. UM with online or digital, at least on our platform, it's very easy for you to invite college friends, you know from a different town, or people who used to work with their high school buddies or whatever to join you for a workout, and it's a great way to kind of socialize. So our anticipation is that the future is going to be both. UM. This pandemic probably did accelerate the trial, at least if not persist an

adoption of digital, you know, as an experience. But we do not think, uh, the offline world is going away anytime soon because it's just such a more immersive experience. We think most people will will mix and match well. And I do wonder if it you bring in different

audiences as a result. Is it just a case of the existing folks who were going to offline classes are now also doing online or did you bring in different audiences because uh, you know, in that for jim owners or fitness centers and for you guys, you know, that's a way of expanding really your potential user base and your revenue base. Absolutely, yeah, absolutely, I mean we we have free audio and video workouts in our app, and you no longer have to be a subscriber to use

class Pass for it's live live streaming. It's it's pay as you go. So we've certainly seen an influx of people just downloading the app to access our free runs, our audio coaching that you can go to the park and go for a workout um or you're in your garage or whatever, or those who want to actually do take a live stream. It's certainly opened us up to an expanded audience. And I think you know what makes class pass magical, not only is the fact that you

can access these different varieties. Right, So one day I can do boxing, the next day I can go to a traditional gym and hit a treadmill or weightlifting, and the next day I can do some recovery, do some yoga. Right, that same heterogeneity, that same ability for me to figure out the routine that works best for me. And offline, we see that applying to digital experience as well. Sometimes maybe I'm okay doing a video on demand class not live.

Sometimes I want that live coach, feedback and interaction intensive community from a digital livestream. Or maybe sometimes I'm okay going to the park and just having an audio coach in my ear, no video whatsoever, coaching me on a run or or on a workout. So we really think the future is everybody figures out the optimal routine for him or herself. But one thing I will say is there's nothing like the efficiency of having a coach there,

right totally. The biggest fitness results have always become from those who are able to afford personal training. If everyone could afford personal training six days a week, everyone would be in a lot the best. That's that's realistic for most of us, right, that's unrealistic. So so we think a lot of it's going to just be budget based.

You know, people will go offline as much as they can afford, because that is going to be the best experience, you know, and then the augment or supplement with online. All right, we really appreciate the time. Thank you so much. Fritz Landman is the chief executive officer of Class Past joining us on the phone from Montana. Certainly someone we want to keep in touch with. Carol. Can I just say what I love? I love what he said about you know, it's now it's easy to invite on a

in an online class like your college roommates. Total world and I've done that. You know, people have gone to on a yoga retreat who are all over the country, all over the world. My yoga teacher has recreated that through zoom and so here we are all all together again. Normally we see each other like once a year. So

think about the options of what you can do. I even thought, oh we could I could just host a family event, you know, like it's just um, well, and I know that this is a quasi competitor to to class past. But remember when we did Peloton Homecoming last year. You had all these people coming to New York for the first time, meeting each other. You know, these communities

that they created sort of unwittingly. Uh. And and clearly there were some situations whereas family getting together, but you know, it's sort of the strangers plus the family. And and look, I do hope that on the other side of this, from a personal perspective, people do appreciate fitness and wellness a little bit more because health is at the core of all this. And I do you know, getting aside worry about like the quarantine fifteen and things like that,

and sort of the mental health and the physical health. Uh. That can be really troubling in a time like this. So good to catch up with Fritz Landman.