What Affirm (AFRM) Said on Its Q1 Earnings Call

Key Points

• Affirm expects fiscal 2027 gross merchandise volume growth of at least 30%, following 34% growth in Q1; management said growth was running in the high-30% range early in Q2 and viewed its forecast as a floor, not a ceiling.
• Higher Q1 credit provisions partly reflected loan-approval experiments that management said helped attract users. Funding costs rose 27 basis points sequentially, but more than 70% of on-balance-sheet funding was fixed rate, and funding costs as a share of loans declined year over year.
• Affirm is expanding its underwriting and card offerings: a new model could lift approvals by two to three percentage points without meaningfully increasing losses, while the company plans new card-specific financing offers and merchant integrations.

Affirm NASDAQ: AFRM expects gross merchandise volume to grow at least 30% in fiscal 2027, after reporting 34% growth in the first quarter, executives said on the company’s earnings call. Management also addressed higher provision expenses, funding costs and plans to expand its card and merchant offerings.

Chief Financial Officer Rob O’Hare said the full-year forecast establishes a floor rather than a ceiling for growth. He said the business was growing at a high-30% rate in the first month of the second quarter and identified no specific reason to expect a slowdown from the first-quarter pace.

Founder and CEO Max Levchin said he aims to sustain growth above 30% for a long time, while cautioning that the outcome is not guaranteed. He pointed to room for expansion in e-commerce, new markets and products. Affirm is live in four markets, he said.

Credit Experiments and Funding Costs

O’Hare said first-quarter provision expenses increased partly because Affirm ran experiments in approvals and originations during September and kept the resulting loans on its balance sheet. He said the loans were reflected in the allowance for credit losses and that the experiments helped attract new users.

The company posted a 4.3% revenue less transaction costs take rate in the quarter, which O’Hare said supported the decision to run the experiments. Levchin said delinquency changes were seasonal and emphasized that the short duration of Affirm’s loans allows the company to respond to changes in credit conditions.

O’Hare also addressed a 27-basis-point sequential increase in funding costs. He attributed some of the movement to seasonal changes in balance-sheet composition and cautioned against interpreting the increase as a direct reflection of higher benchmark rates. Funding costs as a percentage of loans on the balance sheet declined year over year to 6%, he said.

More than 70% of Affirm’s on-balance-sheet funding was fixed rate, O’Hare said. He added that an asset-backed securities deal priced on the day of the call was more than four times subscribed.

On the second-quarter GAAP operating income outlook, O’Hare said some external forecasts may have underestimated warrant expense associated with a large partner’s program. The partner earns warrants based on new-to-program users, and growth in those users has been aided partly by international expansion, he said.

Underwriting and Card Strategy

Levchin discussed a transformer-based underwriting model designed to identify subtle patterns in data and generate predictive features more quickly than a traditional process relying on human-designed features.

Compared with a traditional model candidate, the new architecture performed about twice as well at improving risk separation, he said. That does not mean Affirm is approving twice as many applicants: Levchin estimated the model could raise approvals by two to three percentage points with essentially no incremental losses.

On direct-to-consumer transactions, O’Hare said Affirm generally collects card interchange, which is typically lower than the merchant discount rate paid by an integrated merchant. However, the direct-to-consumer business is heavily weighted toward interest-bearing loans. Affirm Card loans have historically been more than 80% interest-bearing, he said.

Levchin said roughly 30% of card transactions occur in stores, and creating a payment plan before a transaction remains the dominant use case. He said the company plans to introduce card-specific financing programs and offers, including some expected in days or weeks.

Affirm also uses card activity to make the case for direct merchant integrations, Levchin said. Such integrations can make merchant-subsidized financing offers available both at checkout and through the card.

Services, Edge and New Initiatives

Levchin said services were the fastest-growing disclosed segment apart from the broad “other” category. Partnerships such as those with Intuit and ServiceTitan have helped Affirm reach areas including home improvement and offline services, although he described the expansion as early.

Asked about Affirm Edge, President Michael Linford said the company was close to completing some development work but had no partners to announce. Edge is intended to distribute Affirm’s credit offering through debit card issuers. Linford cautioned that the pace of rollout would depend in part on partners.

Levchin also outlined work by his ZT1 team on brand-sponsored promotions, which allow brands to fund financing offers on specific products sold by retailers. About 1 million product listings in the Affirm app had brand-sponsored funding, he said, while cautioning that the initiative was not included in forecasts.

On agentic shopping, Levchin said Affirm is investing time in the area and expects automated shopping tools to consider both borrowing costs and consumers’ payment preferences. He said merchant-funded promotions could become useful in that environment, but cautioned that the market remains in its early stages.

About Affirm (NASDAQ:AFRM)

Affirm Holdings, Inc NASDAQ: AFRM operates a financial technology platform that provides consumers with flexible payment options at the point of sale. Its services allow shoppers to split eligible purchases into scheduled installments, with terms and costs disclosed before a transaction is completed.

Affirm's platform is available through online and mobile checkout experiences, as well as through the Affirm app. Its product offerings include buy now, pay later financing, the Affirm Card, and savings products.

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