What is the story about?
What's Happening?
Affirm has reported a significant earnings outperformance for Q4 2025, marking a pivotal moment for the buy-now-pay-later (BNPL) sector. The company achieved $0.20 per share in earnings, surpassing the estimated $0.11, with revenue increasing by 33% to $876.4 million. This growth was driven by a 43% rise in Gross Merchandise Volume (GMV) to $10.4 billion, supported by strategic partnerships with major platforms such as Apple Pay, Amazon, and Shopify. Affirm's success is attributed to its 0% APR loan strategy, which now constitutes 85% of its longer-term offerings, aligning with consumer preferences for no-interest financing. The company has also enhanced its operational scalability through AI-driven tools and vertical integration, optimizing underwriting and collections, and reducing costs.
Why It's Important?
Affirm's earnings report highlights its ability to scale profitably in a competitive BNPL landscape, where rivals like Klarna and Afterpay are also vying for market share. The company's strategic shift towards interest-free products has fueled loan growth and maintained high conversion rates to interest-bearing products, strengthening its unit economics. Affirm's disciplined approach to risk management and regulatory alignment positions it to outperform in the sector. The company's low customer acquisition cost, driven by AI-powered efficiency, and strong retention rates further bolster its competitive edge. Affirm's success reflects broader trends in the BNPL market, projected to grow significantly in the coming years.
What's Next?
Looking ahead, Affirm has provided guidance for Q1 2026, projecting revenue between $855 million and $885 million and GMV between $10.1 billion and $10.4 billion. The company anticipates adjusted operating margins to exceed 26.1% in fiscal 2026, demonstrating its scalability and profitability in the maturing BNPL sector. Affirm's strategic international expansion into markets like the UK and partnerships with platforms like Shopify and Apple Pay are expected to open new revenue streams, further solidifying its position in the global market.
Beyond the Headlines
Affirm's transition from transactional BNPL to a diversified financial services platform reflects a broader industry shift towards sustainable growth and profitability. The company's focus on AI-driven tools and vertical integration not only enhances operational efficiency but also aligns with consumer demand for innovative financial solutions. Affirm's success underscores the importance of strategic partnerships and product diversification in navigating the evolving BNPL landscape.
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