Affirm Holdings (NASDAQ: AFRM) continues to make waves in the financial sector following its Q2 Fiscal 2025 earnings report on February 6, 2025. The company delivered a strong revenue beat, solidifying its position in the competitive Buy Now, Pay Later (BNPL) market. However, while growth remains robust, concerns over valuation and rising transaction costs loom.
Revenue Growth & Earnings Beat
Affirm reported $803.48 million in revenue, marking a 35.9% year-over-year increase. Meanwhile, its net loss per share stood at $0.21, a notable improvement but still a reminder of its journey toward sustained profitability. Gross Merchandise Volume (GMV) surged 27.6% to $9.5 billion, driven by expanded merchant partnerships and increased adoption of its virtual card.
Key Financial Developments
- Strategic Funding Initiatives: Affirm secured a $750 million commitment from Liberty Mutual Investments, part of a broader plan to borrow up to $5 billion. Additionally, the company expanded existing partnerships with Sixth Street Partners ($4 billion) and Prudential Financial ($500 million).
- Stock Performance: Shares have skyrocketed 129% over the past year, peaking at $52.56 in November 2024. However, valuation concerns persist, with a P/S ratio of 7x, well above the industry average of 2.7x.
- Profitability Outlook: Analysts expect GAAP profitability by Q4 2025, with projections of $153 million in net income by 2026, requiring aggressive 61% annual growth.
Challenges & Risks
Despite its rapid expansion, Affirm faces key hurdles:
- High Debt Load: With a debt-to-equity ratio exceeding 200%, liquidity concerns remain a pressing issue.
- Macroeconomic Sensitivity: Interest rate fluctuations could impact lending conditions, increasing credit risk despite a more favorable borrowing environment.
Affirm’s Roadmap to Growth
The company is targeting $34 billion in lending for 2025, leveraging partnerships with Amazon, Shopify, and Apple. Additionally, Affirm’s debit card adoption and expansion into new markets like Costco and Home Depot could fuel further growth.
Earnings Breakdown: A Milestone Quarter
Beyond revenue, Affirm reported:
- EPS of $0.23, exceeding analyst expectations of -$0.23, a 200% surprise.
- Revenue of $807.16 million, representing a 52% year-over-year increase.
- Active consumers grew to 20.1 million, with transactions per active consumer rising to 5.3.
- GMV from Shopify surged 60%, and the Affirm Card added $400 million in GMV across 700,000 active users.
- Adjusted operating margin of 21%–23%, exceeding company guidance.
Market Reaction & Analyst Sentiment
While Affirm’s earnings initially boosted investor confidence, shares later dropped 10% intraday due to concerns over slower GMV growth in the second half of the fiscal year. The company’s Q3 revenue guidance of $770M–$810M aligns with expectations, but decelerating GMV growth has some analysts cautious.
Where Analysts Stand
- Bullish View: JPMorgan and Mizuho emphasize Affirm’s strong execution and operational leverage.
- Cautious Stance: Wedbush and Piper Sandler raise concerns over valuation (P/S ratio ~7x) and rising transaction costs.
With an average price target of $62, Affirm’s future will depend on its ability to balance growth with profitability. The company’s AI-driven underwriting and strategic partnerships provide strong tailwinds, but investors must weigh potential macroeconomic risks and the sustainability of its expansion strategy.
