Executive Summary / Key Takeaways

• Affirm Holdings, Inc. is demonstrating accelerated growth and a clear path to sustained profitability, fueled by its differentiated AI-driven underwriting, transparent payment solutions, and expanding network of strategic merchant partnerships.
• The company's focus on 0% APR offers and the Affirm Card is proving to be a powerful dual strategy, driving both merchant conversion and high-quality consumer acquisition, which in turn boosts lifetime value.
• Technological innovation, particularly with AdaptAI and Generative AI applications, is enhancing operational efficiency, improving credit risk management, and delivering quantifiable increases in Gross Merchandise Volume (GMV).
• Affirm's robust and diversified capital-efficient funding model, coupled with disciplined credit performance, provides resilience against macroeconomic shifts and supports ambitious international expansion plans.
• Despite a competitive landscape and premium valuation, Affirm's unique value proposition and strategic execution position it for continued market share gains in the evolving digital and offline commerce ecosystem.

The Reinvention of Payments: Affirm's Foundational Strategy

Affirm Holdings, Inc., founded in 2012, embarked on a mission to deliver honest financial products that improve lives, offering a transparent and flexible alternative to traditional payment options. In an industry often characterized by hidden fees and compounding interest, Affirm's model stands out by providing clear, upfront terms with no late fees or penalties. This foundational principle has shaped its overarching strategy: to embed its next-generation commerce platform across as many "doors" as possible, giving both merchants and consumers choice in how they engage with flexible payment solutions.

The broader fintech landscape is undergoing a profound transformation, driven by embedded finance, programmable money, and the pervasive influence of artificial intelligence. Affirm is at the forefront of this shift, leveraging its proprietary technology to integrate financial services seamlessly into everyday experiences. The demand for pay-over-time options continues to surge across North America, with nearly half of U.S. consumers now preferring such solutions over traditional credit cards. This trend underscores a significant market opportunity that Affirm is actively capturing through its strategic initiatives and technological edge.

Technological Moat: AI-Driven Underwriting and Adaptive Checkout

At the core of Affirm's competitive advantage is its sophisticated, AI-driven technology platform. The company's proprietary risk model, built on machine learning and artificial intelligence, underwrites every transaction. This "highly unnatural, very carefully constructed mathematically" approach allows Affirm to assess credit risk with precision, ensuring that offers are tailored to individual consumers' financial health while maintaining disciplined credit performance. Credit performance, as management emphasizes, is an "output of our settings of the models that we run," enabling quick adjustments to underwriting standards in response to macroeconomic changes.

Affirm's commitment to technological innovation extends beyond core underwriting. The company is actively deploying Generative AI (GenAI) for internal productivity, such as analyzing hundreds of thousands of legal contracts, and for enhancing customer satisfaction in dispute resolution. By combining GenAI as a user interface with machine learning on the backend, Affirm can process evidence and adjudicate outcomes rapidly, improving the speed and transparency of service. A notable innovation is AdaptAI, an AI-powered configuration of Adaptive Checkout. This system automatically optimizes financing offers for individual consumers at the point of sale, leading to a quantifiable "average 5% increase in GMV" by presenting the most compelling terms, whether that's a 0% APR deal or a specific monthly payment plan. These technological differentiators create a "durable moat" for Affirm, enabling efficient risk pricing, driving new sales for retailers, and supporting controlled credit performance, all of which are critical for sustained growth and profitability.

Strategic Expansion and Partnership Momentum

Affirm's growth narrative is deeply intertwined with its expanding network of strategic partnerships and a deliberate direct-to-consumer focus. The company has cultivated relationships with industry giants like Amazon , with its U.S. agreement recently extended through January 2031, and Shopify , a partnership renewed through 2028. These collaborations are pivotal for expanding reach and driving Gross Merchandise Volume (GMV). Affirm's Payment Service Provider (PSP) strategy, exemplified by its expanded partnership with Worldpay for Platforms and launch on Stripe Terminal, is crucial for accelerating merchant integrations, particularly in the "greenfield" of offline commerce.

The Affirm Card and the Affirm app represent the cornerstone of Affirm's direct-to-consumer strategy. The Affirm Card, which saw approximately 0.5 million new members in Q1 2026 and now accounts for about 11% of total transactions, is viewed as a "lifetime value booster" for Affirm's "best customers choosing to do more with us." The app serves as both a loan servicing and repayment tool and an increasingly important marketplace for merchant offers, especially 0% APR deals. These 0% APR offers, which are "honest and true transparent" with no hidden fees, are a strategic priority. While "slightly lower margin" for Affirm, they attract higher credit quality consumers, drive brand loyalty, and significantly boost merchant conversion, making them a powerful promotional mechanism. The recent "0% Days" promotion demonstrated Affirm's ability to drive demand and awareness for merchants, showcasing the network's value beyond just bottom-of-funnel fulfillment.

Internationally, Affirm is actively pursuing expansion, with "friends-and-family testing in the U.K. with our Shopify friends" and plans for broader European market entry. The company sees significant demand in the U.K. for longer-term financing options that incumbent banks and pure-play competitors are not adequately addressing. New partnerships with entities like Wayfair (W), Fanatics, Ace Hardware, ServiceTitan, Vagaro, FreshBooks, Clio, Cali Pass, Williams-Sonoma (WSM), and KAYAK further underscore Affirm's aggressive market penetration across diverse verticals and geographies.

Financial Performance: A Trajectory Towards Profitability

Affirm's financial performance reflects its strategic execution and operational effectiveness. For the three months ended September 30, 2025 (Q1 Fiscal 2026), the company reported total revenue of $933.34 million, a robust 34% increase year-over-year. This growth was underpinned by a 42% surge in GMV to $10.80 billion, driven by broad-based strength across merchant categories and direct-to-consumer products. Net income reached $80.69 million, a significant turnaround from a $100.22 million loss in the prior-year period.

Key revenue streams demonstrated strong momentum: merchant network revenue grew 36% to $251.15 million, card network revenue jumped 46% to $69.33 million, interest income increased 20% to $454.12 million, gain on sales of loans soared 87% to $119.05 million, and servicing income rose 53% to $39.69 million. This diversified revenue growth highlights the increasing adoption and utility of Affirm's platform.

On the expense side, total operating expenses increased by a modest 5% year-over-year to $869.68 million, demonstrating significant operating leverage. This led to an operating income of $63.66 million, a substantial improvement from a $132.62 million loss in the comparable period. The reduction in sales and marketing expense by 46% was primarily due to the conclusion of Amazon warrant amortization. Affirm's TTM (trailing twelve months) financial ratios for fiscal year 2025 further underscore its improving financial health, with a Gross Profit Margin of 62.53%, Operating Profit Margin of 3.15%, and Net Profit Margin of 6.74%. Annual operating cash flow stood at $793.91 million, with free cash flow at $601.72 million, indicating strong cash generation.

The company's capital-efficient funding model is a critical enabler of its growth. As of September 30, 2025, Affirm boasted $2.20 billion in cash and available-for-sale securities, complemented by $5.40 billion in available funding debt capacity and a $330 million revolving credit facility. This robust liquidity position is deemed sufficient to meet operational and growth requirements for at least the next 12 months. Affirm's ability to execute in the capital markets, expanding relationships with "blue-chip forward flow buyers" and scaling its ABS program, is a testament to the strong performance and unique value of its loan assets.

Outlook and Risk Assessment

Affirm's management has provided an optimistic outlook, reflecting confidence in its strategic direction and market execution. For the second quarter of fiscal 2026, revenue is projected to be between $1.03 billion and $1.06 billion. The full-year fiscal 2026 GMV guidance has been raised to $47.5 billion, up from $46 billion, and the operating margin is now expected to exceed 7.5%, an increase from prior guidance of over 6%. The company aims for a Revenue Less Transaction Costs (RLTC) take rate with an upper bound of 4% in the long term, strategically reinvesting any surplus to drive network expansion and growth.

Despite this positive outlook, Affirm operates within a dynamic environment characterized by several risks. Macroeconomic uncertainties, including inflation, elevated interest rates, and potential recessionary concerns, could impact consumer spending and borrowing costs. Regulatory scrutiny, particularly from the CFPB, remains a constant factor. While Affirm's AI-driven underwriting and short loan durations provide agility in managing credit risk, concentrations in certain states (e.g., 11% of loan receivables from California, 10% from Texas) warrant monitoring. The company's reliance on partnerships for banking services, while currently strong, could pose a vulnerability if relationships falter. The shift of a key partner like Walmart (WMT) to a competitor also highlights ongoing competitive pressures, though Affirm's diversified partnerships and strong momentum with Amazon (AMZN) and Shopify (SHOP) are expected to mitigate this impact.

Competitive Landscape and Affirm's Differentiated Edge

The buy-now-pay-later (BNPL) market is intensely competitive, with Affirm vying against a range of players from specialized fintechs to established digital payment giants and traditional lenders. Key direct competitors include PayPal Holdings, Inc. , Block, Inc. through Afterpay, and Upstart Holdings, Inc. .

Compared to PayPal , Affirm offers more flexible, longer-term installment plans and a mobile-first, consumer-centric app, positioning itself as a specialized BNPL provider. While PayPal (PYPL) boasts an extensive global network and broader digital wallet services, Affirm leads in the speed of innovation for personalized lending experiences, leveraging its AI-driven underwriting for precise targeting.

Against Block's Afterpay, Affirm focuses on structured, credit-based installment plans for larger purchases, underpinned by its AI-driven risk management. Afterpay, in contrast, often targets flexible, interest-free options for everyday items. Affirm's emphasis on transparency and consumer protection, coupled with its partnerships with traditional banks for lending, provides a distinct value proposition, though Block's (SQ) integrated ecosystem with Cash App offers broader product diversity.

When compared to Upstart , both companies leverage AI for credit decisions. However, Affirm's platform is more deeply integrated with point-of-sale experiences, giving it an edge in merchant integrations and transaction processing speed within retail environments. Upstart (UPST), while strong in automated underwriting for broader personal loans, may not match Affirm's specialized focus on embedded commerce financing.

Affirm's competitive advantages are rooted in its proprietary AI-driven credit assessment technology, strong network effects from its growing merchant partnerships, and its transparent pricing model. These moats enable efficient risk evaluation, personalized loan offers, and a superior customer experience that fosters loyalty. The company's strategy is not to win on price, but on conversion, impact, and the unique value of its "honest" 0% APR offerings. While its valuation metrics, such as a Forward P/E ratio of 88.98 and a P/S ratio of 6.64, suggest a premium compared to industry averages, this is justified by its rapid growth, accelerating profitability, and the significant operating leverage derived from its technology and scale. Affirm's disciplined approach to credit, even amidst competitive pressures, ensures sustainable growth rather than chasing volume at the expense of asset quality.

Conclusion

Affirm Holdings, Inc. is executing a compelling investment thesis, transforming the landscape of consumer finance through its innovative, transparent, and AI-powered payment network. The company's strategic focus on expanding its merchant ecosystem, driving direct-to-consumer engagement with the Affirm Card, and leveraging 0% APR offers is yielding accelerated GMV growth and a clear path to sustained GAAP profitability. Affirm's technological leadership in AI-driven underwriting and adaptive checkout solutions provides a durable competitive moat, enabling superior risk management and quantifiable operational efficiencies.

Despite operating in a competitive and dynamic macroeconomic environment, Affirm's robust funding model, disciplined credit performance, and strategic international expansion initiatives underscore its resilience and long-term potential. The company's ability to consistently deliver strong financial results while adhering to its mission of honest financial products positions it as a leader poised for continued market share gains in the evolving digital commerce landscape. Investors should recognize Affirm's unique blend of technological innovation, strategic partnerships, and financial discipline as key drivers for its ongoing ascent.