Affirm (AFRM)

Buy now, pay later company Affirm (NASDAQ:AFRM) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 33.6% year on year to $933.3 million. Its GAAP profit of $0.23 per share was significantly above analysts’ consensus estimates.

Company Overview

Founded by PayPal co-founder Max Levchin with a mission to create honest financial products, Affirm (NASDAQ:AFRM) provides a payment network that allows consumers to make purchases and pay for them over time with transparent, flexible installment loans.

Personal loan providers offer unsecured credit for various consumer needs. The sector benefits from digital application processes, increasing consumer comfort with online financial services, and opportunities in underserved credit segments. Headwinds include credit risk management in unsecured lending, regulatory oversight of lending practices, and intense competition affecting margins from both traditional and fintech lenders.

Affirm competes with traditional credit card issuers like Chase, Citibank, and American Express, as well as other buy now, pay later providers such as Klarna, PayPal's Pay in 4, and Block's Afterpay. The company also faces competition from emerging fintech payment solutions and bank-offered installment payment options.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Affirm grew its revenue at an incredible 42.2% compounded annual growth rate. Its growth beat the average financials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Affirm’s annualized revenue growth of 41.7% over the last two years aligns with its five-year trend, suggesting its demand was predictably strong. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Affirm reported wonderful year-on-year revenue growth of 33.6%, and its $933.3 million of revenue exceeded Wall Street’s estimates by 5.5%.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For Personal Loan companies, we look at pre-tax profit rather than the operating margin that defines sectors such as consumer, tech, and industrials.

Interest income and expenses play a big role in financial institutions' profitability, so they should be factored into the definition of profit. Taxes, however, should not as they are largely out of a company's control. This is pre-tax profit by definition.

Over the last four years, Affirm’s pre-tax profit margin has fallen by 84.3 percentage points, going from negative 77.2% to 7%. It has also expanded by 59.8 percentage points on a two-year basis, showing its expenses have consistently grown at a slower rate than revenue. This typically signals prudent management.

Affirm’s pre-tax profit margin came in at 8.9% this quarter. This result was 23 percentage points better than the same quarter last year.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Affirm’s full-year EPS flipped from negative to positive over the last five years. This is a good sign and shows it’s at an inflection point.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Affirm, its two-year annual EPS growth of 49% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, Affirm reported EPS of $0.23, up from negative $0.31 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Affirm’s full-year EPS of $0.67 to grow 47.9%.

Return on equity (ROE) measures how effectively banks generate profit from each dollar of shareholder equity - a critical funding source. High-ROE institutions typically compound shareholder wealth faster over time through retained earnings, share repurchases, and dividend payments.

Over the last five years, Affirm has averaged an ROE of negative 23.2%, a bad result not only in absolute terms but also relative to the majority of firms putting up 25%+. It also shows that Affirm has little to no competitive moat.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

Affirm currently has $8.35 billion of debt and $3.30 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 2.6×. We think this is safe and raises no red flags. In general, we’re comfortable with any ratio below 3.5× for a financials business.

It was good to see Affirm beat analysts’ EPS expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 12.8% to $74.42 immediately after reporting.

Updated: December 3, 2025 at 11:32 PM EST

Before investing in or passing on Affirm, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Affirm is a pretty good company if you ignore its balance sheet. For starters, its revenue growth was exceptional over the last five years. And while its relatively low ROE suggests management has struggled to find compelling investment opportunities, its astounding EPS growth over the last four years shows its profits are trickling down to shareholders. Additionally, Affirm’s expanding pre-tax profit margin shows the business has become more efficient.

Affirm’s P/E ratio based on the next 12 months is 20.5x. Despite its notable business characteristics, we’d hold off for now because its balance sheet concerns us. We recommend investors interested in the company wait until it generates sufficient cash flows or raises money before getting involved.

Wall Street analysts have a consensus one-year price target of $92.83 on the company (compared to the current share price of $69.74).