Affirm Holdings Inc Earnings - Q1 2026 Analysis & Highlights
Affirm Holdings reported record Q3 2026 results driven by strong consumer engagement, merchant expansion, and favorable funding conditions, with management emphasizing sustainable growth momentum, AI-driven productivity gains, and strategic investments in card adoption and international expansion.
Key Financial Results
Fiscal Q3 2026 marked another record quarter for the company, with management describing it as "another one for the record books."
Funding costs declined significantly, with funding costs down approximately 125 basis points year-over-year, driven by both lower benchmark rates and sustained tightening of spreads across asset-backed securitization (ABS) deals.
Revenue less transaction costs (RLTC) margins continued to run above long-term targets, indicating strong unit economics and operational efficiency.
Allowance rate increased quarter-over-quarter, primarily driven by seasonality in Q3 and elevated prepayments on the platform, which management characterized as a positive credit signal.
Business Segment Results
Pay in X segment showed fastest growth, with one large program moving to an evergreen 0% offer via Pay in 4, and continued strong growth from the Shopify program.
Affirm Card reached 4.4 million active cardholders, representing approximately 17% attachment rate of active users, with 700,000 new cardholders added in the quarter.
Active merchant count increased 44%, accelerating beyond Q2 performance, with largest opportunities coming from platform partners including PSPs and large merchant platforms like Shopify.
Card product remains the fastest growing and most profitable product, with card customers showing higher credit quality than average Affirm consumers and more frequent usage patterns.
Capital Allocation
AI-related development spending was low-single digit millions per quarter, with management emphasizing that spending on developer tools has always been part of the budget and is being evaluated holistically for efficiency gains.
No AI-related layoffs are planned, with management noting that Affirm operates as a lean machine with high revenue per employee comparable to NVIDIA levels, and AI tools are being used to increase development velocity rather than reduce headcount.
Industry Trends and Dynamics
Capital markets remain exceptionally constructive for Affirm, with funding market showing significant depth, sustained and reducing spreads, and deals with significant oversubscription.
Three ABS deals executed in 2026 year-to-date, including two revolving deals in the quarter and one recently priced static deal, all showing incredible depth and continued spread tightening.
Forward flow funding is heavily weighted toward stable, long-term capital sources, with the largest forward flow counterparty being the joint venture with Sixth Street, supplemented by large pension funds and insurance complexes.
BNPL market remains competitive but Affirm maintains strong positioning, with management noting that while there are no monopolies in payments, Affirm has earned economies of scale and strong capital markets relationships.
Competitive Landscape
Affirm's short duration asset is a significant competitive advantage, having taken years to establish and now being recognized by capital markets as differentiated from competitors.
Sophisticated underwriting capabilities represent a key competitive moat, with management noting that many competitors have attempted underwriting but found it to be very difficult, while Affirm has consistently delivered strong credit outcomes.
Brand recognition and consumer trust are building competitive advantages, with recent consumer studies showing strong brand recognition and understanding that Affirm means no late fees, a promise maintained for 15 years.
Network effects are strengthening competitive position, with over 90% of transactions coming from returning users, and the combination of merchant expansion and consumer adoption creating a self-reinforcing flywheel.
Competitors have changed their identity and strategic focus, while Affirm has maintained consistent positioning and promises to consumers and merchants, resulting in compounding advantages over time.
Macroeconomic Environment
Affirm consumer credit quality remains stable with no deterioration observed, with management noting that delinquencies were stable and there were no disturbances in credit performance.
Elevated prepayments during tax season provided positive credit signal, with management noting that tax refunds drove early loan payoffs, indicating consumer financial health.
Economic volatility exists but has not materially impacted Affirm's funding or credit environment, with management describing the capital markets as "extremely constructive" despite headlines about broader economic concerns.
Growth Opportunities and Strategies
Merchant presentment remains in early innings, with significant optimization opportunities within existing partnerships, particularly the new Intuit program representing an enormous universe of merchants still being developed.
Affirm app is being positioned as a primary shopping destination, with deliberate design to create engagement beyond payment processing, including merchant promotions and 0% offers, with Big Nothing events organized around app usage.
Card adoption strategy focuses on organic growth from existing user base, with no performance marketing or external advertising, relying instead on product optimization and re-engagement of known consumers.
Adaptive Checkout (now being rebranded as Affirm Checkout) is performing well and becoming increasingly understood by merchants, with AI optimization to find optimal settings in real-time for each consumer.
Physical retail expansion represents significant opportunity, with management noting that while Affirm dominates online e-commerce, approximately 75-80% of commerce occurs in physical retail where the company has interesting product ideas in development.
International expansion plans will be discussed in detail at the Investor Forum, with some investment work already underway and testing in progress ahead of market launches.
AI-driven development velocity is accelerating product roadmap execution, with recent hackathons delivering dozens of shippable features, enabling faster prototyping and feature development than previously possible.
Financial Guidance and Outlook
Q4 2026 growth rate expected to be incrementally more positive than Q3, though there is a difficult year-over-year comparison due to sunsetting a top three merchant in Q1, creating a few points of growth headwind.
Fiscal 2027 comps will be easier, with management noting that as the company moves into the new fiscal year, year-over-year comparisons will improve and Q4 growth rate should not be viewed as a ceiling for future growth.
International expansion investment expected to continue into fiscal 2027, with potential for modest drag on revenue less transaction costs as the company enters new markets and develops underwriting prowess, though headwinds expected to be minimal given the size of US and Canadian businesses.
No specific 2027 guidance provided, with management deferring detailed outlook discussion to avoid premature commitments, noting that some initiatives may take one to two years to reach launch quality.
Credit Quality and Risk Management
Delinquency rates remained stable quarter-over-quarter, with management emphasizing that Affirm's selective underwriting of its consumer base has resulted in consistent credit performance.
AI-assisted code development maintains quality standards, with management emphasizing that Affirm has implemented unique checks and balances to ensure code quality matches or exceeds pre-AI standards, with extensive testing and validation before deployment.
Loan loss on purchase commitment decreased as percentage of portfolio, driven by increased 0% volume mix rather than changes in vendor economics, reflecting the shift toward 0% financing products.
Product and Technology Innovation
Agentic code development showing noticeable ramp, with double the amount of requests compared to previous periods, contributing to increased development velocity and improved bottom-line economics.
Transactions per active user growing above 20%, driven by network effects from both merchant expansion and consumer card adoption, with consumers discovering Affirm across multiple categories and use cases.
Consumer awareness of Affirm app as shopping destination is trending positively, with consumers increasingly understanding that the app is a place to start shopping rather than just checking payments, supported by growing number of app searches.
