Affirm Reports Strong Q4 Earnings
Affirm (AFRM) made quite an impression on Wall Street during the fourth quarter. The company saw its revenues climb 33% to $876 million, exceeding analysts’ expectations of $837 million. In a significant turnaround, Affirm reported a profit of 20 cents per share, compared to a loss of 14 cents per share a year earlier. This shift to profitability is noteworthy, especially as it indicates strong operational leverage as the company scales.
Investment Strategy Update
Product volume soared to $10.4 billion, marking a 43% increase year-over-year from $8.6 billion in the previous quarter. Chief Operating Officer Michael Linford pointed out that this quarter represents their highest gross merchandise volume (GMV), which is a bit unusual for Q4. He also emphasized that it was Affirm’s first quarter of profitability since going public, calling it “a real big deal for us.”
Management’s Outlook
The company has set a revenue goal of at least $46 billion in GMV for fiscal year 2026, and anticipates between $855 million and $885 million for the current quarter. Linford was clear about the outlook, stating that they’ve established a “floor” for expectations and are aiming for stronger performance. “We’re very intentional about the numbers we put out there. We’ll do better than those numbers,” he noted, reiterating that Affirm takes guidance seriously.
The impression left by this announcement is timely. Earlier this year, a more cautious outlook had surprised investors. However, the combination of revenue surpasses, profitable results, and a strong projection has shifted the sentiment positively.
Investor Reactions
Following the earnings report, the stock jumped 13% to $90.72. This surge is particularly significant as many recent FinTech earnings met estimates but failed to spark substantial market interest. Here, attention focused on profitability, GMV strength, and future potential.
Jefferies maintained a buy rating and a price target of $95, calling it another robust quarter. The firm noted that its guidance would “probably satisfy the Bulls,” highlighting stable credits and margins. Moreover, the company’s zero percent APR products appear to attract higher creditworthy borrowers, enhancing credit metrics. There’s also been a notable increase in active users and merchants, suggesting a broader growth base.
Walmart Integration Changes
The expected dissolution of the partnership with Walmart (WMT) in March raised some concerns. However, management indicated that Walmart accounted for only about 5% of GMV and around 2% of adjusted operating profit. Linford mentioned that the transition will occur in the second quarter, with Krana taking over from the direct integration. He clarified that this relationship isn’t finished. “We serve consumers directly, and that can extend to merchants who are no longer directly integrated,” he explained. This distinction allows Affirm to maintain diverse avenues for volume retention, even amid changes in primary partnerships.
Credit Stability Amid Challenges
During these uncertain macro conditions, Linford’s comments were measured. He downplayed concerns over tariffs, suggesting that the burden falls more on merchants than on Affirm. “The bottom line is what the merchants face, and we’re here to help them sell their inventory,” he remarked. As inventories grow, flexible checkout options become essential for sales, a utility where Buy Now, Pay Later (BNPL) services thrive.
Jefferies echoed this perspective, noting stable credit quality and an improved mix. If the loss rate stays low while volume increases, operational leverage will continue to shine through the results. This combination has helped turn what was once a loss into profit for this quarter.
Future Monitoring
Moving forward, it’s essential to track GMV against a target of “at least $46 billion.” Also, keep an eye on the credit mix as zero percent products expand. Finally, monitoring how the Walmart migration affects direct consumer channels will be key in offsetting integration losses. If these elements hold steady, it suggests that management’s strategy can keep driving growth.
Affirm Stock Outlook
Affirm currently holds a medium buy rating on Wall Street. Out of 18 analysts who provided insights over the last three months, 12 recommend buying the stock, six suggest holding, and none recommend selling. The average price target for AFRM stands at $80.13, slightly above its recent close at $79.99.
