Affirm Holdings Inc Earnings - Q4 2025 Analysis & Highlights
Affirm Holdings reported strong Q2 FY2026 results with robust growth across key metrics, driven by expansion of the Affirm Card, international growth, and new merchant categories, while maintaining disciplined credit management and benefiting from favorable funding market conditions.
Key Financial Results
Gross Merchandise Value (GMV) grew 36% year-over-year in Q2 FY2026.
Revenue less transaction costs showed strong growth, driving improved profitability metrics.
RLTC (Revenue Less Transaction Costs) take rates are expected to be slightly above 4% in both Q3 and Q4 of the guidance provided.
Net Charge-Off (NCO) rates are being managed tightly and remain within acceptable parameters, with management noting these metrics are "super tightly run lines."
Loss provisions increased slightly by a few basis points, reflecting proactive credit management in a healthy consumer environment.
Business Segment Results
Affirm Card GMV grew just under 160% year-over-year, with active cardholders increasing 121% and 0% deals on the Card up approximately 190% year-over-year.
International operations, particularly in the UK, are growing at a pace that management finds exciting, with new partnerships announced including Shopify, Wayfair, and VMO2.
Services category was broken out separately approximately two quarters prior after reaching critical mass within the "other" category.
"Other" category now represents 15% of total GMV and is growing at triple-digit rates, driven by a long tail of small merchants across diverse categories.
Top five merchants grew 23% year-over-year, with a different subset of five merchants compared to the prior year period due to a large merchant partner transitioning off the Affirm integration.
Capital Allocation
ABS (Asset-Backed Securities) funding remains a key capital source, with the most recent deal priced at a spread of under 100 basis points, the lowest since 2021.
Weighted average yield in the latest ABS deal was below 4.6%, representing the best cost of financing since the rate movement period.
Forward flow agreements with private credit counterparties are an increasing part of funding sources, with partners expressing strong demand for Affirm's origination flow.
Loan allocation to partners follows a vertical slice approach, with loans randomly allocated rather than cherry-picked for specific characteristics.
Industry Trends and Dynamics
Consumer health is strong, with consumers "able and willing to pay us back" and borrowing money at healthy levels.
Buy now, pay later (BNPL) adoption continues to expand, with merchants increasingly realizing they are "at a disadvantage if they do not offer Affirm."
0% financing offers remain highly effective in driving conversion, with management noting that "0% sells as well as they do" due to simplicity and transparency.
Competitive promotional activity from other BNPL providers, including aggressive cash back incentives, has not materially impacted Affirm's merchant pricing or take rates.
Wallet partnerships are driving significant merchant growth, with wallet-sourced merchants now included in the active merchant count and contributing to the 42% merchant growth rate.
Competitive Landscape
Affirm's competitive moat is built on transparent, simple messaging around 0% interest with no hidden terms or asterisks, which management believes is "inherently defensible."
Merchant value proposition centers on Affirm's ability to drive conversion without requiring merchants to run deep discount sales, with management positioning this as superior to competitor offerings.
Market positioning as a "21st Century version of American Express" with aspirations to achieve universal acceptance across all retail channels, both online and offline.
Competitors' promotional strategies have not gained traction with Affirm's consumer base, with management noting that complex promotional offers with multiple conditions do not resonate compared to Affirm's straightforward approach.
Macroeconomic Environment
Consumer credit trends show no signs of distress, with management stating "we are not seeing a big deviation from what I just said about the past one" quarter.
Regulatory environment remains dynamic, with management tracking both federal and state-level regulatory developments and maintaining active conversations with regulators.
Credit card rate discussions are occurring at the federal level, but no specific caps on BNPL rates are being discussed.
Political dynamics influence regulatory posture, with management noting that state attorneys general activity varies based on which party controls the White House.
Growth Opportunities and Strategies
Affirm Card expansion remains a primary focus, with management stating "my personal focus on the product side of things is still predominantly on the Card and adjacent things in the Card."
International expansion is accelerating with partnerships in the UK and plans for additional countries, with management noting international is "now growing consistently at a pace that excites us."
BoostAI product allows merchants to allocate incremental promotional budgets for automated A/B testing of 0% and reduced APR offers, shifting the model from cost acceptance to advertising.
AdaptAI has been in operation for a couple of years and is included as a standard feature in the product offering.
Bank charter application has been submitted to the FDIC for regulatory certainty and potential future product expansion, though approval timeline is measured in years.
Fiserv partnership enables regional banks and financial institutions to offer buy now, pay later capabilities on debit cards through core banking software providers.
Intuit QuickBooks integration allows service providers to offer Affirm financing options directly in invoices, unlocking a new B2B2C channel for services transactions.
Rent payment pilot is a very small test focused on time-shifting payments rather than extending subscription periods, with minimal loan volume currently.
Agentic commerce is viewed as a significant long-term opportunity, with management committed to ensuring Affirm's presence across all forms of commerce including AI-driven transactions.
Payment Service Provider (PSP) partnerships are expanding to make Affirm a default payment method alongside traditional card networks.
Financial Guidance and Outlook
GMV growth guidance projects 30% growth in Q3 and 25% growth in Q4 of FY2026, representing a deceleration from Q2's 36% growth.
RLTC take rates are expected to remain slightly above 4% in both Q3 and Q4.
Adjusted operating margins are expected to continue expanding, with management signing up for more FY2026 margin expansion in the current guidance than provided 90 days prior.
No specific headwinds are identified for the projected deceleration, with management noting they are "comping the transition with a large retail partner" but grew at 36% despite this headwind.
Funding market conditions remain "very constructive," with management noting that conversations with partners typically involve "having to disappoint them on how much allocation we can give them."
Regulatory and Strategic Initiatives
Industrial Loan Company (ILC) bank charter application reflects management's belief that Affirm is prepared for "the big leagues" and demonstrates commitment to regulatory compliance.
Investor forum scheduled for May 12 of the current year will feature expanded management participation and updates to the medium-term financial framework.
Credit management approach focuses on NCO rates as the "North Star" metric, with management maintaining tight control over credit outcomes to deliver promised returns to capital markets partners.
