Is Affirm Stock a Buy? Analyzing Investment Potential

Affirm is a financial technology company that provides “Buy Now, Pay Later” (BNPL) services, allowing consumers to make purchases and pay for them over time through installment plans. This payment method has gained popularity as an alternative to traditional credit cards, particularly for online shopping. The company’s platform integrates with merchants, offering consumers flexible financing options at the point of sale.

Affirm’s Business Operations

Affirm’s core business revolves around facilitating installment payments for consumers, benefiting both shoppers and merchants. For consumers, the service breaks down larger purchases into smaller, manageable payments, often with transparent terms and no hidden fees. A notable aspect is that Affirm performs a soft credit check, which typically does not impact an individual’s credit score, to assess creditworthiness and offer financing options.

The company offers several product types, including interest-bearing loans and 0% Annual Percentage Rate (APR) loans. For interest-bearing loans, the APR can range from 0% to 30%, with an average around 18%, though about 43% of loans are issued at 0% APR. The terms for these loans can vary, with payback periods ranging from 1 to 60 months, and loan limits up to $25,000, although the average loan size is about $750.

Affirm also provides “Pay in 4” options, where the purchase is split into four interest-free installments, with the first payment due at checkout and the remaining three due bi-weekly over six weeks.

Affirm generates revenue primarily from merchant fees and interest income. Merchants pay a fee, typically 2% to 4% (up to 12.5%), for offering BNPL, especially for 0% APR loans where they cover financing costs. Affirm also earns interest on loans and interchange fees from its debit cards.

Affirm’s funding model is diverse, including committed access to warehouse facilities where it borrows against loans, and forward-flow agreements that facilitate the sale of whole loans to third-party investors. By selling a portion of the originated loans, Affirm can generate upfront revenue through a “Gain on Sale” and reduce the need for equity capital. The company also provides loan servicing for these sold loans, earning servicing income.

Financial Health and Performance

For the fiscal year ending June 30, 2024, Affirm reported total GAAP net revenue of $2.3 billion, a 36% increase year-over-year. Gross Merchandise Volume (GMV), which represents the total dollar amount of all transactions processed on its platform, was $26.6 billion for fiscal year 2024, up 31% from the prior year. In the fourth quarter of fiscal year 2024, GMV reached $7.2 billion, marking a 31% year-over-year increase, and revenue was $659 million, a 48% increase from the same period last year.

Despite strong top-line growth, Affirm has faced profitability challenges. For fiscal year 2024, the company reported a net loss of $518 million. This represents an improvement from the $985 million net loss in fiscal year 2023, indicating progress towards reducing losses.

Operating expenses for fiscal year 2024 were $2.94 billion, a 5.38% increase from 2023. These expenses include provisions for credit losses, sales and marketing, and technology and data analytics costs.

The company’s adjusted operating income, a non-GAAP measure that excludes certain expenses like stock-based compensation and depreciation, showed improvement, reaching $150 million in Q4 2024, a significant increase from $15 million in Q4 2023. Affirm aims to achieve GAAP operating income profitability in the fourth quarter of fiscal year 2025.

Market Dynamics and Competitive Landscape

The Buy Now, Pay Later (BNPL) market has experienced significant growth, driven by consumer demand for flexible payment options and the expansion of e-commerce. The global BNPL market was estimated at $11 billion in 2024 and is projected to reach $29 billion by 2031, growing at a compound annual growth rate (CAGR) of 14.4%. In the United States, the BNPL services market was valued at $170.32 billion in 2025 and is projected to reach $367.85 billion by 2030, with a CAGR of 16.65%. This growth is fueled by younger consumers, particularly millennials and Gen Z, who favor short-term, interest-free installments.

Affirm operates within a competitive landscape that includes other dedicated BNPL providers, traditional financial institutions, and credit card companies. Key competitors include Afterpay (now part of Block Inc.), Klarna, PayPal’s Pay in 4, Sezzle, and Zip Co. Limited. Traditional banks and credit card companies are also increasingly entering the BNPL space, often by embedding installment plans into existing cards and mobile applications. For instance, JPMorgan Chase’s payments unit has partnered with Affirm to make its BNPL options available to its network of merchants.

Affirm’s competitive advantages include its transparent fee structure, which typically avoids late fees for consumers, and its focus on larger purchases with longer repayment terms compared to some competitors. Strategic partnerships with major retailers like Amazon, Walmart (though Walmart recently partnered with Klarna for a portion of its BNPL services), and Shopify have expanded its merchant network and customer reach.

However, broader economic factors, such as rising interest rates, can influence the BNPL sector. Higher interest rates can increase funding costs for BNPL providers and potentially impact consumer demand for credit. Regulatory scrutiny, particularly from bodies like the Consumer Financial Protection Bureau (CFPB) regarding data furnishing and consumer protection, is also a developing factor in the industry.

Evaluating Investment Potential

One common approach for growth companies with fluctuating or negative earnings is the Price-to-Sales (P/S) ratio. This ratio compares a company’s market capitalization to its total revenue over a specified period, indicating how much investors are willing to pay for each dollar of sales. A lower P/S ratio might suggest undervaluation, but its interpretation depends heavily on industry norms and the company’s specific context.

The P/S ratio is particularly useful for valuing companies that are not yet profitable, as it focuses on revenue, which tends to be more stable than earnings. However, it does not account for a company’s expenses, debt levels, or profitability, so it should be used in conjunction with other financial metrics for a comprehensive analysis. Investors should also consider the company’s revenue growth rate, profit margins, and any competitive advantages when using this metric.

Beyond financial ratios, evaluating the quality of a company’s management team is also important for investment decisions. This involves assessing factors like the management’s ethics, competence, and capital allocation decisions. Investors can review the professional backgrounds of executives, their track record in previous ventures, and their communication transparency. Consistency in executing strategies and navigating challenges also provides insight into management quality.

Finally, potential investors should align their investment decisions with their own financial goals and risk tolerance. Growth companies like Affirm can offer significant upside potential but may also carry higher risks due to their evolving business models and market dynamics. Thorough due diligence, combining financial analysis with an understanding of management and market trends, is crucial for making informed investment choices.