Investors hunting for high-growth
technology plays with improving fundamentals may want to give Affirm Holdings
(NASDAQ: AFRM) a second look. After years of operating losses, Affirm now
appears to be on the cusp of sustainable profitability, as seen in its latest
quarterly report in Q4 fiscal 2025. Its strong revenue growth, improving free
cash flow, and favorable valuation multiples all point to a stock with
compelling upside, yet it still carries risks typical of fintech/lending
businesses. In this article we will dive into Affirm Holdings recent earnings,
stock performance & valuation, growth potential, and the risks investor
should consider.
About Affirm Holdings
Affirm Holdings was founded in
2012 by Max Levchin and others, with the mission of rethinking how consumers
finance purchases. The company operates primarily in the buy now, pay later
(BNPL) space, offering installment loans at point-of-sale with a transparent
structure (no hidden fees, no compounding interest). Affirm’s services are
integrated in e-commerce, point-of-sale kiosks, and via virtual or physical
credit/debit cards. It makes money through merchant fees, interest income, and
financing spread (i.e. the interest earned minus funding cost).
Affirm Financial Performance
Affirm Holdings reported a strong
set of results for Q4 2025, which ended in June 2025, highlighting its rapid
transition toward sustainable profitability. Revenue for the quarter reached $876.42
million, up 32.95% from $659.19 million in Q4 2024, while EPS improved to $0.20,
a sharp turnaround from –$0.14 a year earlier, reflecting a 242.86% increase.
On a trailing twelve months (TTM) basis, revenue climbed to $3.22 billion, a 38.8%
rise compared to $2.32 billion in the prior year. Likewise, EPS for the TTM
period turned positive at $0.15, a significant improvement from –$1.67,
representing a 108.98% increase. Free cash flow per share also strengthened to $1.76,
up 87.23% from $0.94, underscoring the company’s enhanced cash-generating
ability. Profitability metrics showed a gross margin of 45.97%, net margin of
1.62%, and a robust free cash flow margin of 18.66%, though returns remain
modest with ROA at 0.47% and ROE at 1.8%. The balance sheet reflects a debt-to-equity
ratio of 2.56, typical for a lending-driven model but highlighting the
importance of efficient capital management.
Over the past five years, Affirm
has grown its revenue at a 57.6% CAGR. Free cash flow turned positive in 2024,
and net income turned positive in 2025 and has continued to grow rapidly.
Affirm Fiscal 2026 Financial
Forecast
Looking ahead, analysts forecast
revenue for 2026 to grow to $3.98 billion, a 23.29% increase over 2025, with
non-GAAP EPS expected to reach $2.44, up 39.42% from $1.75. Reflecting this
positive outlook, analysts have assigned Affirm a Buy rating, with an average
price target of $95.13 a 22.86% upside potential and a high target of $115,
suggesting potential gains of up to 48.47%.
AFRM Stock Price Performance
and Valuation
At the time this article was written the stock was trading at $77.43 per share. Affirm’s stock has delivered impressive returns over the past year, representing a 98.2% gain and significantly outperforming the S&P 500’s 17.6% increase during the same period. However, looking at a longer horizon, the stock remains down 33.8% since IPO in January 2021, lagging behind the S&P 500’s 78.1% rise, which highlights both the volatility and turnaround potential of the company.
From a
valuation perspective, Affirm trades at a price-to-sales (P/S) ratio of 7.45
TTM, with a more attractive forward P/S of 6.1, reflecting expected revenue
growth. On earnings metrics, its non-GAAP P/E stands at 40.39 TTM, with a forward
P/E of 30.56, indicating improving profitability and significant earnings
leverage as the business scales. Additionally, the Price to Free Cashflow P/FCF
ratio is 41.91. While these multiples may appear high at first glance, they are
supported by the company’s rapid growth, margin improvements, and consistent
positive free cash flow, making the stock still appealing for growth-oriented
investors.
Affirm Growth Potential
Affirm growth potential remains
strong, driven by several factors.
- Robust Gross Merchandise
Volume (GMV) and Transaction Growth
Affirm achieved a 43% year-over-year increase in gross merchandise volume (GMV) to $10.4 billion in Q4 2025, surpassing management expectations and analyst estimates. This growth was driven by expanding consumer adoption of flexible installment loan options and a significant rise in repeat usage, supported by 37.5 million transactions, a 52% increase from the prior year. Consumers are increasingly leveraging Affirm’s payment solutions for both everyday expenses and larger purchases, which has boosted purchase frequency and average order values.
This sustained GMV momentum propelled revenue up 33% year over year to $876 million. The higher transaction volumes also benefit merchant partners by reducing cart abandonment and increasing average sales, thereby creating a reinforcing cycle of adoption and network effects that strengthen Affirm’s market position in the buy-now-pay-later sector. - Diversification and Strength
of the Direct-to-Consumer Proposition
The Affirm Card has become a key growth driver, enabling direct engagement with consumers beyond merchant checkouts. In Q4 2025, Affirm Card GMV surged 132% year over year to $1.176 billion, while active cardholders nearly doubled to 2.3 million, growing 97%. This diversification lessens reliance on partner merchants and creates a recurring revenue stream from both in-store and digital spending. Since its launch, the card has developed into a "sticky" product, with 24% of transactions now processed through Affirm’s own channels.
Owning the customer relationship allows Affirm to offer personalized deals, boost cross-selling, and capture more wallet share. This enhances customer loyalty and lifetime value, establishing the Affirm Card as an integral element of Affirm’s expansion strategy and securing a stronger competitive position in the buy-now-pay-later market. - Expanding Merchant Ecosystem
and International Reach
As of Q4 2025, Affirm served 377,000 active merchants, reflecting a 24% year-over-year increase and broadening its total addressable market while mitigating concentration risk. Strategic collaborations with e-commerce platforms like Shopify facilitated Affirm’s accelerated expansion into Western Europe, starting with France, Germany, and the Netherlands. This international rollout opens new revenue channels beyond North America. By integrating directly into merchant checkout and point-of-sale systems, Affirm reduces barriers for mid-sized and large retailers to adopt its buy-now-pay-later solution, driving deeper penetration across various retail categories.
This geographic and merchant diversification enhances Affirm’s resilience against regional economic shifts and creates stronger network effects as consumer and merchant engagement intensifies on the platform, reinforcing Affirm’s competitive positioning and supporting sustainable long-term growth in global markets.
Risks to Consider
While Affirm growth prospect
looks bright, we should be mindful of potential risks.
- Competitive Risks
Affirm operates in a highly competitive Buy Now, Pay Later market, facing rivals like Klarna, PayPal, Upstart, and traditional banks. This competition compresses profit margins and challenges growth as BNPL services commoditize. To maintain and grow its merchant and consumer base, Affirm must increase marketing spend and offer pricing incentives, putting pressure on its profitability while striving to differentiate through technology and customer trust. - Credit Risk and Economic
Sensitivity
Affirm has not yet faced a complete credit cycle, raising concerns about its ability to maintain credit quality during economic downturns marked by reduced spending and increased defaults. While Affirm’s real-time underwriting system helps manage this risk, it cannot fully eliminate it, especially in economic slowdowns or recessions where consumer financial strain intensifies. This credit risk remains a key challenge for Affirm as it grows. - Regulatory Risks
Affirm faces rising regulatory scrutiny from agencies like the Consumer Financial Protection Bureau, which enforces consumer protection, lending transparency, and data privacy laws. Potential changes in BNPL regulations could increase compliance costs and restrict business operations. Affirm already invests significantly in compliance and legal expenses, but ongoing regulatory uncertainty remains a material risk that could impact its growth and profitability moving forward.
Conclusion
Affirm Holdings (AFRM) has shown a remarkable turnaround with strong revenue growth, improving profitability, and robust free cash flow, signaling a shift toward long-term sustainability. Despite a volatile past and premium valuation, the company’s growth prospects, expanding market opportunity, and analyst optimism position it as a compelling investment. With shares up nearly 100% in the past year and forecasts pointing to further upside, Affirm remains a strong candidate for investors seeking growth potential in fintech.
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