Affirm's Q4 2025 Earnings Call Contradictions: 0% APR's Impact, Merchant Contributions, and Credit Risk

The above is the analysis of the conflicting points in this earnings call

Guidance:

• Outlook assumes a large enterprise partner winds down by end of fiscal Q1 FY26; zero volume via that integration thereafter (reduces holiday exposure).
• Expect revenue less transaction costs (RLTC) take rate at the very high end of the 3–4% range.
• Monthly 0% loans grew >90% YOY; mix expected to continue shifting toward these offerings.
• Funding conditions remain favorable; focus on long-term, blue-chip capital partners.
• UK launch with Shopify in friends-and-family; initial mix skewing longer-term, interest-bearing; credit discipline maintained.
• Rate sensitivity: 100 bps move ≈ 40 bps funding-cost change; impact lags 1–2+ years; symmetric in a declining-rate environment.
• PSP/offline integrations (e.g., Stripe Terminal) ease in-store adoption but still require co-marketing.

Business Commentary:

* Record Quarterly Performance: - Affirm Holdings reported record GMV, net earnings, and revenue per transaction in Q4 fiscal 2025. - The growth was attributed to strong demand from consumers and accelerated credit performance, despite macroeconomic uncertainties.

• Increased Adoption of Zero-Percent APR:
• Monthly zero-percent APR loans grew over 90% year-over-year, with approximately 50% of new users opting for this offer.

• The adoption was driven by effective marketing and compelling consumer value propositions, leading to increased repeat purchases and diversification of credit portfolios.

• Expansion into International Markets:

• Affirm Holdings is set to launch in the UK with Shopify integration, indicating significant market potential.

• The strategy involves leveraging existing partnerships and focusing on tailored product offerings, such as longer-term interest-bearing loans, to cater to the unique needs of international markets.

• Funding and Credit Management:

• Affirm's funding capacity increased by 55% year-over-year, with a significant decrease in utilization.
• The company maintains a disciplined approach to credit underwriting and capital partner selection to ensure long-term sustainability and control over credit risk.

Sentiment Analysis:

• Management highlighted “a new record in most of our metrics” and said “growth is accelerating.” Credit remains strong: “we feel quite excellent about our ability to get paid back on time,” with 95% of transactions from repeat borrowers. Mix tailwinds: “monthly 0% loans were growing north of 90% year on year.” Funding backdrop: “conditions are very favorable… and that’s to our benefit.”

Q&A:

• Question from Dan Dolev (Mizuho): How is consumer health trending versus last quarter and what underpins the stronger outlook?
  Response: Consumer performance remains strong; originations and on-time repayments are solid, driving accelerating GMV and record metrics.

• Question from Dan Perlin (RBC Capital Markets): Do 0% APR first-time users repeat and convert to interest-bearing loans?
  Response: Repeat behavior is similar to other cohorts, and many 0% users later take interest-bearing loans; 0% is profitable but less so.

• Question from Adam Frisch (Evercore ISI): How insulated is Affirm if consumer credit weakens (FICO mix, student loan resumption)?
  Response: Underwriting every transaction and tight monitoring keep credit consistent; models are adjusted as needed to maintain performance.

• Question from Will Nance (Goldman Sachs): Does abundant funding create risky competitor behavior, and how do you manage funding?
  Response: Affirm partners with disciplined, blue‑chip, long‑term capital providers; environment is favorable and execution benefits from it.

• Question from Moshe Orenbuch (TD Cowen): Strategy and significance of the Affirm Card, including 0% on the card?
  Response: Card is scaling quickly with more features coming; 0% drives frequency; long‑term goal is large active base with higher annual spend.

• Question from Rob Wildeck (Autonomous Research): Why aren’t peers leaning into 0% APR like Affirm?
  Response: True 0% requires complex, real‑time underwriting and merchant-subsidy infrastructure; Affirm’s math‑driven models and tooling enable it.

• Question from Rob Wildeck (Autonomous Research): Timing of the enterprise merchant transition in guidance?
  Response: Outlook assumes the partner is wound down by end of fiscal Q1, implying no holiday volume via that integration.

• Question from Kyle Peterson (Needham & Company): Take-rate outlook and product-mix implications; competition amid favorable funding?
  Response: Expect RLTC take rate at the high end of 3–4% as monthly 0% grows; maintain disciplined underwriting and long-term funding partners.

• Question from Adip Chaudhary (William Blair), on behalf of Andrew Jeffrey: International strategy (UK/other geos) and mix differences?
  Response: UK is in friends‑and‑family with Shopify; early mix skews longer-term, interest‑bearing; Europe likely next; credit rigor maintained.

• Question from John Hetz (Jefferies): How do engagement and ticket size evolve as customers mature; impact if rates fall?
  Response: Frequency rises while average ticket gently declines with card expansion; 100 bps rate change ≈ 40 bps funding-cost shift with lag.

• Question from James Faucette (Morgan Stanley Investment Management): Importance of PSP/Stripe Terminal channel and 0% term dynamics?
  Response: PSPs ease offline activation but still need co‑marketing; shorter 0% terms reflect seasonality and initial merchant program setups.

• Question from Reggie Smith (JPMorgan): Non-Shopify PSP penetration/default-on status; details on the exiting enterprise merchant?
  Response: PSP channel is early but accretive; pursuing default‑on placements; guidance assumes zero volume via that integration after fiscal Q1.

• Question from Matt Code (Truist Securities): Merchant adoption of funding 0% APR and potential ceiling; role of AI?
  Response: Expect broad adoption as merchants shift marketing to bottom‑funnel financing; Adapt AI optimizes offers to lift conversion/GMV.

• Question from Jamie Friedman (SIG): How does Adapt AI deliver the ~5% GMV lift?
  Response: AI auto‑configures checkout terms (APR/tenor) per consumer to maximize conversion and lower merchant costs versus manual tuning.

• Question from Giuliano Bologna (Compass Point): Can wallet partnerships enable offline BNPL, and how will underwriting evolve?
  Response: Offline is a large opportunity; focus on awareness and tender delivery integrations; underwriting discipline remains unchanged.

• Question from Harry Bartlett (Rothschild & Co., Redburn): Speed of European rollout and brand strategy abroad?
  Response: Platform is reusable across markets; regulatory/data work varies; expand via multinational partners with limited direct brand spend.