What They Do
Affirm is a "buy now, pay later" (BNPL) fintech company that lets consumers split purchases into installments at checkout, both online and in-store. They partner with merchants who want to increase conversion rates and average order values, while offering consumers transparent financing with no hidden fees. Affirm makes money through merchant fees and interest on loans, with a growing portfolio that includes 0% promotional financing and their Affirm Card.
Investment Thesis
**Explosive growth across all metrics** — 36% GMV growth, 42% merchant growth, and 160% Affirm Card GMV growth demonstrate strong market adoption**Margin expansion story playing out** — ROTC margins hit 4.1%, near the top of their long-term 4%+ target, driven by lower funding costs and improved transaction economics **Diversification reducing concentration risk** — "Other" category now 15% of GMV (growing triple digits) while top 5 merchant concentration fell to 23%Key Risks
**Slowing growth momentum** — Guided GMV growth decelerates from 36% in Q2 to ~25% in Q4, raising questions about market saturation**Competitive pressure on pricing** — Revenue take rates softening due to increased mix of 0% promotional deals needed to compete with traditional credit cardsGrowth Story
Revenue is expected to grow 29.9% in 2026 to $4.1B, then accelerate to $5.1B in 2027 as Affirm expands internationally, diversifies into new verticals like rent payments, and scales their Affirm Card. The "Other" category (beyond their top merchants) is driving triple-digit growth and reducing dependence on large retail partners, while wallet integrations and AI-powered merchant tools create new distribution channels.
Profitability Profile
Affirm is approaching their long-term profitability targets with gross margins at a healthy 67.5% and ROTC margins hitting 4.1%. Management expects "slightly above 4%" ROTC margins for the rest of 2025 and signed up for "more FY26 margin expansion than guided 90 days ago." The path to profitability is being driven by lower funding costs (recent ABS deals under 100bps spread) and improved transaction economics.
Competitive Position
Affirm competes with traditional credit cards, other BNPL players like Klarna/Afterpay, and emerging fintech solutions. Their key differentiators include transparent pricing with no hidden fees, flexible loan terms (not just 4 payments), and deep merchant integrations. Management embraces "channel conflict" by being available everywhere consumers want to shop, viewing ubiquitous distribution as a competitive moat for payment networks.
Recent Momentum
Q2 results were described as "excellent" by management with beats across revenue (+12.7%) and EPS (+$0.10), yet the stock declined in after-hours trading. The market may be concerned about the guided deceleration in GMV growth for H2, despite strong underlying metrics like 121% growth in active Affirm cardholders and successful promotional events driving engagement.
What Wall Street Thinks
Analysts are focused on growth diversification away from large retail partners and the sustainability of current growth rates as guidance moderates. There's positive sentiment around the margin expansion story and credit quality ("quite healthy" consumers), but questions remain about competitive dynamics and whether the stock's recent underperformance reflects execution concerns or broader fintech sector headwinds.
The Bottom Line
Affirm is successfully transitioning from a high-growth, unprofitable fintech to a diversified payments network approaching sustainable profitability, but investors are questioning whether 25-30% growth rates justify the premium valuation in an increasingly competitive BNPL market.
